Startup - Entity Choices
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Generally, an employer is a person or organization for whom a worker performs services as an employee. As an employer, you are required to withhold and report employment taxes. To file the various employment tax returns, you need a Taxpayer Identification Number (TIN). Usually, the TIN is an Employer Identification Number (EIN). However, a sole proprietor may use his or her social security number as the TIN if the business has no employees and does not file excise or pension tax returns. A sole proprietorship is the only type of business that may use a social security number rather than a TIN as its EIN.
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Thursday, February 22, 2007 01:34 AM
State and Local Tax Considerations in Choosing Form of Business Entity
In his latest column in the series "State of Practice," Peter L. Faber of McDermott, Will & Emery, New York, addresses considerations that arise in consultation with clients over the form to use for a new business entity.
Introduction
One of the most common situations into which tax practitioners are called is a discussion with a client over the form to use for a new business entity. When the only types of entity were C corporations and partnerships, the considerations were simple and well-understood. The analysis was complicated in 1958 by the introduction of subchapter S, which for the first time made it possible to get the benefits of liability protection for the owners of the business afforded by the corporate form while at the same time getting the tax benefits of partnerships, which allow the entity's income to be distributed to the owners with only a single level of tax. Unfortunately, subchapter S was, and still is, subject to eligibility restrictions and somewhat complex rules for calculating and allocating income that limit its usefulness in many situations.
In the last few years, limited liability companies have appeared on the scene. Although initially LLCs were subject to the Internal Revenue Service's complex rules relating to entity classification, so that it was necessary to show that an LLC had no more than two of the four characteristics that the IRS viewed as being common to corporations to qualify for flow-through treatment, the adoption by the IRS of the "check-the-box" regulations -- which allow an entity other than a corporation to choose whether it will be taxed as a corporation or as a flow-through entity -- removed a major stumbling block to their use. /1/ LLCs are not subject to the eligibility restrictions that apply to S corporations. For example, an LLC can have different classes of ownership interests, including limited and preferred interests, and can have owners that are partnerships, corporations, nonresident aliens, and other types of persons that may not own stock in an S corporation.
The issue of choice of entity comes up in many different contexts. I once worked simultaneously on the organization of a family business for a small group of individuals and a multibillion-dollar joint venture for two major oil companies. The considerations that we took into account in deciding what kind of entity to use in the two situations were surprisingly similar. Here, as in many areas, the tax analysis, to the extent that there is one, often focuses on the federal tax considerations and ignores state and local tax aspects. As in other areas, this can be a mistake. Significant tax savings can be realized by taking state and local considerations into account. This is one area where federal, state, and local tax aspects of a transaction should be considered at the same time, and this article will discuss the federal issues as well as the state and local issues.
Federal 'Check-the-Box' Regulations
Any discussion of tax aspects of the choice of business entity must begin with the federal check-the-box regulations. For years, tax practitioners agonized over whether partnerships (particularly limited partnerships) and later LLCs would be classified as flow-through entities, as was generally desired, or as corporations for tax purposes. The problem was particularly acute with respect to entities like limited partnerships and LLCs that offered their owners limited liability, that is, protection in most cases from liability for the entity's liabilities. Limited liability is a characteristic that is generally associated with corporations, and practitioners feared that the presence of this characteristic could present a significant obstacle in situations where corporate classification was not desired. The IRS, consistent with its mandate to interpret the words "partnership" and "corporations" as they appeared in the Internal Revenue Code, classified entities according to whether they had a preponderance of characteristics that were generally associated with corporations or partnerships. The IRS identified four characteristics that were generally associated with corporations: limited liability; centralized management; continuity of life; and free transferability of interests. The prior regulations provided that an organization that was formed as a corporation under local law would be taxed as a corporation. An organization that was formed as some other kind of entity under local law would be taxed as a corporation only if it had three of the four corporate characteristics. Although practitioners became comfortable with these rules and were generally able to form entities that they were confident would be classified as flow-through entities, there was always a lingering concern that corporate classification might result from an accidental foot fault. Moreover, unsophisticated practitioners who did not know such esoterica as that free transferability of interests could be avoided by requiring the general partner's consent to the admission of a transferee as a limited partner, even though that consent was not required for a transfer of the economic incidents associated with the interest, might stumble into corporate classification without knowing it. As a result, taxpayers worried, or should have worried, about the tax treatment of newly formed entities, and sophisticated tax practitioners charged handsome fees for advising on the tax aspects of entity classification.
The Treasury Department decided to bring order out of the chaos by making the tax classification of noncorporate entities elective with the taxpayers. The check-the-box regulations, as they have come to be known, were adopted in late 1996, effective January 1, 1997. /2/ They replaced the four-part test based on corporate characteristics with an elective regime under which entities that were not formed as corporations under local law could elect to be treated as flow-through entities or as corporations for federal tax purposes. If an entity elected flow-through treatment and had more than one owner, it would be taxed as a partnership. If it had only one owner, it would be taxed as a sole proprietorship, or as a division of a corporation if the owner were a corporation. To make things even simpler, the Treasury provided a series of default rules under which if a domestic entity made no election it would be treated as a flow-through entity. Thus, unincorporated entities that have never heard of the check-the-box regulations will be taxed on a flow-through basis. /3/ The Treasury was more concerned about foreign entities, and the ability of foreign entities to use the check-the-box procedures was limited and remains an area of concern because taxpayers have shown an ability to manipulate the check-the-box regulations with respect to foreign entities that the Treasury has not always found to be to its liking.
During the early months of the check-the-box regime, practitioners were concerned about whether the states would follow suit. I generally advised clients at this time to comply with the old federal four-factor test if at all possible, just to be sure that flow-through treatment would be available for state purposes as well as for federal purposes. This concern was prompted in part by a concern as to whether the check-the-box regulations were valid for federal tax purposes. One can argue that if an entity more closely resembles a corporation than a partnership, the IRS does not have the power to treat it as a partnership under the Internal Revenue Code. If an organization is a corporation, and arguably that means that it has more corporate than noncorporate characteristics, nothing in the Code gives the IRS the power to tax it as anything other than a corporation. /4/ Many practitioners were concerned that state tax authorities, faced with a statute that required them to treat "corporations" in a certain way, might conclude that they lacked the statutory authority to treat an entity that had a predominance of corporate characteristics as anything other than a corporation for tax purposes.
The concern was particularly acute with respect to single-member LLCs, which the IRS under its prior regulations seemed to have difficulty treating as flow-through entities. While many practitioners became comfortable with the notion that a single-member LLC could be treated as a flow-through entity under the prior regulations (and my firm gave opinions to this effect), there was some concern. Nevertheless, in the ensuing years those states that have expressed an opinion on the subject have adopted the federal rules and, in effect, have said that they would respect federal entity classification. Nevertheless, state and local tax practitioners should review the rules in particular states, because they are not always fully consistent with the federal rules. For example, in Massachusetts LLCs are taxed in accordance with their federal classification, but the Department of Revenue has not expressed a similar opinion regarding partnerships, and it may be that the classification of limited partnerships will be subject to the old federal rules. /5/ Moreover, the check-the-box rules may apply for some state taxes (typically income and corporate franchise taxes) but not for others. An entity that is disregarded for income tax purposes may be treated as a separate taxable entity for sales and use tax purposes, which can create planning opportunities as well as pitfalls.
Entity-Level Income Taxes
Except in the few states that do not have a corporate income or franchise tax, states generally tax corporations on their net income after deduction of appropriate business expenses. States also generally impose an alternative tax on capital (or asset value) if that would produce a higher tax than the tax imposed on net income. Thus, corporations that have losses for income tax purposes may nevertheless owe tax based on their capital or asset value. Some states, unlike the federal regime, also impose an entity-level tax on flow-through entities such as partnerships and LLCs. In planning for the choice of entity, the imposition of state and local entity-level taxes should be considered. In some cases, the imposition of an entity-level tax was a direct response to the use of flow-through entities to avoid taxable nexus. For example, the Tennessee Department of Revenue had ruled that a corporation that had business operations in Tennessee and that was taxable there could avoid Tennessee nexus by transferring those operations to a limited partnership in which it held a 99 percent limited partnership interest and an affiliate held a 1 percent general partnership interest. /6/ When the possible revenue loss attributable to this position became apparent, the department went to the state legislature and convinced it to approve legislation imposing an entity-level tax based on net income or net worth on passthrough entities with limited liability, such as LLCs and limited partnerships. No entity-level tax was imposed on general partnerships, but it is generally believed that a general partner in a general partnership has nexus in a state where the partnership does business.
Other states have adopted variations on the theme. For example, Illinois imposes a personal property replacement tax based on net income on passthrough entities. Michigan's single business tax applies to LLCs. Ohio imposes an entity-level tax on passthrough entities with nonindividual members that do not file Ohio corporate franchise tax returns. The tax is available as a credit (nonrefundable) to the investors, so that, in effect, a foreign corporation cannot avoid nexus by transferring its operations to a limited liability flow- through entity.
Interestingly, Florida and Pennsylvania have gone in the opposite direction. They originally taxed LLCs as separate entities but repealed these taxes by legislation.
California imposes a somewhat nominal fee on LLCs based on total income.
The law in this area is in flux, and it seems likely that states will move in the direction of imposing entity-level taxes on passthrough entities that offer limited liability to their members. If they do not, the potential for avoiding taxable nexus through the use of LLCs may prove to be too much of a drain on tax revenues. The imposition, and likely future imposition, of entity-level state income and franchise taxes on entities that are not subject to federal income taxes should be taken into account when the form of entity is being chosen.
Contractual Alliances
Before a decision is made on what kind of entity to use, a preliminary decision must be made as to whether to use a separate entity at all. When unrelated corporations go into joint ventures, they often decide not to form a separate joint venture entity but rather to reflect their relationship in contractual arrangements for the provision of goods or services. Even where the joint venture will involve a manufacturing facility and physical capital, it is possible for the joint venturer that owns the property to lease a partial interest in it to the other and for the parties to work out a contractual arrangement in which the expenses and the income from the performance of services for the venture are shared. There are a number of reasons why this might be done. It avoids the possible imposition of taxes on the unwinding of the venture because no property will be transferred from the venture entity to the members. It may help in avoiding the need to capitalize start-up costs, although the Internal Revenue Service's recent close attention to capitalization issues makes this unlikely. When the venture will have an international component, avoiding the transfer of property to a separate entity may avoid international tax complications. In the state and local area, not using an entity avoids the risk that all of the members will have nexus in states where the venture does business because they will not be partners in a partnership. If no entity is formed, there will be no entity to be subject to state and local entity-level taxes.
On the other hand, there may be reasons to use a separate entity, and in my experience the co-venturers normally choose to do this. A separate entity enables the parties to build up equity value, and it will be easier to sell the operation in the future if that becomes desirable. It also facilitates the use of equity to compensate employees. If a separate entity is not used, a later public offering will be hard to implement because it will be necessary to construct financial statements from the records of all parties. Finally, third parties such as banks and suppliers may want to have a separate legal entity with which to deal.
C Corporation Versus Passthrough Entity
This part of the article will discuss the relative advantages and disadvantages of C corporations on the one hand and passthrough entities on the other. I will then discuss considerations relevant in choosing among the different forms of passthrough entities.
The major tax advantage of using a passthrough entity is the avoidance of the double tax that is imposed on C corporations and their shareholders. Income of C corporations is taxed to the corporation and is taxed a second time when it is distributed to the shareholders. Although corporate shareholders can take a dividends received deduction of 70 percent if the C corporation is a domestic corporation, those earnings will be taxed a third time when they are eventually distributed to the corporate shareholders' own shareholders. /7/ A corporation can file federal consolidated returns with another corporation that owns 80 percent or more of its stock by vote and value /8/, but it is unusual in a joint venture among several corporations for one corporation to own 80 percent or more of the joint venture entity. Moreover, even if federal consolidated return filing is available, consolidated or combined returns may not be available at the state and local level unless the corporations are engaged in a unitary business and, in some states, meet other requirements. Some states do not permit combined or consolidated returns under any circumstances.
Flow-through treatment may be particularly desirable for start-up ventures where early losses are expected. The venture's losses can be passed through to the owners and deducted on their own income tax returns if the entity is a flow-through entity. If the entity is a C corporation, the losses cannot be used currently by the shareholders but must be carried forward and used only against future income of the corporation itself. Obviously, an immediate tax benefit is worth more than one that will be realized, if at all, only in the future.
Using a flow-through entity may avoid a separate state entity- level income tax, although, as indicated above, the trend may be toward imposing state income taxes even on entities that are taxed on a flow-through basis for federal tax purposes.
Using a C corporation may make it easier to provide equity to employees as an incentive. Employees understand what corporate stock is, and, if the entity is publicly held or has the potential for becoming publicly held, the availability of a market for their interest will be a distinct advantage.
If the answer to the entity choice question is unclear, it may be advantageous to begin with a flow-through entity. It is generally easy to change from a flow-through entity to a C corporation on a tax-free basis, whereas unwinding a C corporation typically involves a tax not only to the C corporation if it distributes appreciated assets (including goodwill) but also to the shareholders.
Using a C corporation may be preferable if it is contemplated that there will be a public offering of equity interests in the near future. There is generally no public market for equity interests in entities other than C corporations and, although the operations of a passthrough entity can always be restated in terms of what they would have been had the entity been a C corporation for purposes of the public offering documents, this is cumbersome and investors may be uncomfortable with it.
A corporation can be sold tax-free in a reorganization under section 368 of the Internal Revenue Code if certain technical requirements are met. In general, all or a substantial part of the sale price must be paid in stock of an acquiring corporation or its parent corporation. While this option is available to S corporations as well as C corporations, S corporations cannot be used when more than 75 owners are contemplated or where it is desirable to use preferred stock. Although in theory a flow-through entity can be converted to a C corporation before a tax-free reorganization, the IRS will treat a transfer to a newly formed C corporation in anticipation of an attempted sale of the C corporation in a tax-free reorganization as being itself taxable. Although ordinarily transfers to a new corporation in exchange for its stock are not subject to income tax (except where liabilities are transferred under certain circumstances), the tax exemption applies only if the transferors control 80 percent or more of the transferee corporation immediately after the transfer. If a sale of that corporation's stock is contemplated, whether in a tax-free reorganization or otherwise, the control requirement may not be met. Moreover, the IRS has taken the position that to be exempt from tax, a transfer must have a business purpose, and a transfer designed solely to facilitate a sale will not be viewed as meeting this requirement.
If some of the investors are tax-exempt organizations, using a passthrough entity may expose them to unrelated business income tax. /9/ This is not a problem if a C corporation is used. Obviously, if a C corporation is used the venture's income will be subject to tax anyway, but exempt organizations often prefer to avoid having to report unrelated business income on their annual information returns, and dividends or interest received from a C corporation, even a controlled one, are generally not subject to the unrelated business income tax.
From a state and local tax standpoint, using a C corporation may avoid taxable nexus for the owners of the business in states where the corporation does business but where the owners are not separately taxable. Of course, the danger of mandatory filing of combined returns must be taken into account if a corporate shareholder controls the C corporation and they are engaged in a unitary business.
It will often be the case that a corporate owner will want to be able to file
combined
returns with the venture entity for state tax purposes. For example, it may wish
to get the benefit of the joint venture entity's losses on its own tax returns.
If it does not control the joint venture (typically 50 percent or 80 percent
stock ownership) or if the joint venture entity does business in states that do
not allow the filing of combined returns under any circumstances or only if the
parties are engaged in a unitary business, using a flow-through entity such as
an LLC can bring about de facto combination because of the flow-through of
income and losses from the entity to its members.
If the choice is between a C corporation and a flow-through entity other than an S corporation, liability considerations may be important. The law is well-established that the shareholders of a corporation can be held liable for the corporation's debts and tort liabilities only in highly unusual circumstances. In general, a claimant may "pierce the corporate veil" and hold the shareholders liable only when the shareholders have effectively disregarded the corporation and carried on its business separately. A claimant seeking to hold the shareholders of a corporation liable for its debts where there has been no express assumption by them will be confronted with centuries of court cases holding that corporate existence must be respected. On the other hand, a claimant against an LLC may be able to convince a court to "pierce the LLC veil." Although the statutes in some states say that the liability of an LLC member is exactly the same as that of a corporate shareholder, the laws of other states are less precise and a judge, faced with a sympathetic claimant and no contrary precedents (because LLCs are so new), might conclude that the standard for piercing an LLC veil is lower than the standard for piercing a corporate veil. A judge might be influenced by the fact that LLCs are not typically treated as separate legal entities for tax purposes, although in my view this should be irrelevant.
The states have been slow to address the treatment of single- member LLCs (SMLLCs) for sales and use tax purposes. The federal government does not impose a sales tax; hence, the drafters of the check-the-box regulations did not address the treatment of disregarded entities such as SMLLCs for sales and use tax purposes.
Most states have been treating LLCs, including SMLLCs, as separate legal entities for sales tax purposes, even where they have been disregarded for income tax purposes. For example, the Illinois Department of Revenue has held that an SMLLC that makes taxable sales must be registered for and pay the state sales tax. /10/ The Hawaii Department of Revenue has held to the same effect, as have the tax authorities in Virginia and South Carolina. /11/ On the other hand, the Alabama Department of Revenue has held that a transfer of assets by a corporation to an SMLLC for resale to an out-of-state customer would not avoid the Alabama sales tax on the withdrawal of items from inventory. The Alabama DOR held that the SMLLC, being disregarded for income tax purposes, should also be disregarded for sales tax purposes and that the withdrawal tax applied. The Alabama statute literally seems to extend income tax treatment to all taxes, so this may be an example of a literal application of a statute. /12/
If a corporation wants to form a separate entity to conduct operations in a particular state so that the corporation itself will not have operations in that state and will not be subject to sales and use tax collection requirements and other taxes in the state under Quill Corp. v. North Dakota /13/, consideration should be given to using an LLC. If, as seems likely, the LLC will be treated as a separate entity for sales and use tax purposes even though it is disregarded for income tax purposes, nexus for the owner of the SMLLC should be avoided even though the SMLLC will be disregarded for income tax purposes so that the advantages (if there are any) of combination will be obtained. Although the same sales and use tax nexus result could be obtained by using a corporate subsidiary, the ability of the subsidiary to file combined returns with the parent cannot always be assured in view of the vagaries of the unitary business requirement and the fact that some states do not allow combination even where the business is unitary.
Choice Among Different Forms of Passthrough Entities
If for tax reasons it is desirable to use a passthrough entity, a decision must be made as to what kind of entity to be used. Before the advent of LLCs, the choice was between an S corporation and a limited or general partnership. The addition of LLCs has complicated the mix.
There are a number of reasons to use an S corporation. As it is a corporation under local law, the liability protection for shareholders is better defined than is the liability protection for LLC members. Although the liability protection for limited partners in a limited partnership has been part of the law for many years, this has always been somewhat uncertain because of the general rule that limited liability is not available to a partner who is actively involved in the partnership's management. There has always been a danger that a limited partner could lose its limited liability by getting too involved in the business.
Because an S corporation is a corporation, its business can be sold to a corporate buyer in a tax-free reorganization under section 368 of the Internal Revenue Code if the technical requirements of that section are met. A later public offering may also be easier to implement, although for an S corporation, as for any other passthrough entity, it will be necessary to restate the financial results to put them on a C corporation basis.
As a corporation, an S corporation can create an employee stock ownership plan or can issue stock options to employees.
On the other hand, S corporations are subject to significant restrictions. Only individuals, estates, and certain kinds of trusts can own S corporation stock. Corporations, partnerships, LLCs, and nonqualifying trusts cannot be S corporation shareholders. /14/ S corporations cannot have more than 75 shareholders and they cannot have more than one class of stock, with a limited exception for nonvoting common stock that is identical in all other respects to the corporation's voting common stock.
The liquidation of an S corporation, unlike the liquidation of a partnership or an LLC, is a taxable event. If the corporation has appreciated assets, it will recognize gain on their distribution and, even if that gain is not subject to corporation-level tax under section 1374 of the Code (that applies to assets previously owned by the S corporation while it was a C corporation or acquired tax-free from a C corporation), the gain will be passed through and taxed currently to the shareholders. There will not be a second level of tax because the shareholders will be able to increase the basis of their S corporation stock by the amount of corporate gain passed through to them, but the single level of tax may be disincentive enough and it is not imposed on the liquidation of passthrough entities that are not corporations.
S corporation income must be allocated among the shareholders pursuant to a rigid formula set forth in the statute. In general, the income is allocated on a per-share per-day basis. Partnerships and LLCs that are taxed as partnerships have much more flexibility in allocating income and deductions and can do so under the regulations under section 704(b) of the Internal Revenue Code as long as the allocation has substantial economic effect or is otherwise in accord with the economic arrangement among the parties.
The restrictions on the use of S corporations make them unappealing for many of the equity fund ventures that are now being structured. Those funds typically involve the use of preferred equity, carried interests (in which the promoters of the fund receive an interest that is disproportionate to their capital contributions), and other non-pro-rata profit-sharing arrangements. The single-class- of-stock restriction on S corporations typically makes that form of entity unsuitable for equity funds.
States generally recognize S elections and tax S corporations and their shareholders in the same way as does the federal government. Before an S corporation is formed, however, the rules in the different states in which the corporation will do business should be examined, particularly those concerning nonresident shareholders. New York City, in contrast to New York State, does not recognize S elections and taxes S corporations and their shareholders as if they were C corporations.
If it is decided not to use an S corporation, the choice is between a partnership and an LLC. In recent years, we have generally been using LLCs where permitted by state law. They provide limited liability for all owners, whereas a general partnership provides no limited liability protection and a limited partnership can be used only if there is at least one general partner of some substance that is fully exposed to the partnership's liabilities. The liability problem for general partnerships can be managed to some extent by having each partner use a special-purpose limited liability entity to be its representative in the partnership. For example, if three corporations are forming a joint venture, each can create a special- purpose wholly owned subsidiary and these subsidiaries can be the partners in the partnership. While this works from a liability standpoint because the ultimate owners are shielded from the partnership's liabilities by their special-purpose subsidiaries, this structure is cumbersome and there is always the danger that the special-purpose subsidiaries and their parents will not be able to file combined state income tax returns in some or all states, thereby subjecting them to a second layer of tax. Individual owners can form S corporations or LLCs to be the partners in the partnership, but this, in addition to being complex, can subject them to income tax when the venture is unwound.
Local law may require the use of a partnership rather than an LLC for certain professions. Although often local law permits the formation of limited liability partnerships, this is not always the case.
General partnerships may be an endangered species. The availability of flow-through treatment to other entities that offer limited liability protection means that it will be an unusual situation in which a general partnership will be desirable for domestic operations.
Conclusion
Tax considerations often play a major role in choosing the form of legal entity in which a business is to be conducted. State and local tax considerations are an important element of the analysis and often dictate the final result, particularly when a decision is made at the outset to use a passthrough entity and the real issue is what kind of passthrough entity to use. Here, as in so many other areas, state and local tax practitioners have to make their federal colleagues aware of the important roles that they can, and should, play in the process.
ENDNOTES
/1/ Treas. Reg. section 301.7701-3.
/2/ Treas. Reg. section 301.7701-3.
/3/ Treas. Reg. section 301.7701-3(b).
/4/ Although in general taxpayers would not object to classification as a flow-through entity, so that a challenge to the validity of the taxpayer-friendly check-the-box regulations may be unlikely, one can envision some circumstances in which such a challenge might occur. For example, an individual member of an LLC that had a substantial amount of taxable income that it did not distribute might argue that the LLC should be taxed as a corporation and not as a flow-through entity, so that he would not be taxed on undistributed income.
/5/ Technical Information Release 97-8 (Jun 16, 1997) and letter rulings 99-13 (June 24, 1999) and 00-5 (Mar. 20, 2000).
/6/ Tennessee Letter Ruling 97-49.
/7/ IRC section 243.
/8/ IRC section 1504(a)(2).
/9/ IRC section 511ff.
/10/ Illinois General Information Letter (Sep 29, 1997).
/11/ Hawaii Tax Information Release 97-4 (Aug 4, 1997); Virginia Ruling of Commissioner P.D. 98-157 (Oct 20, 1998); Revenue Ruling 95- 9, S.C. Department of Revenue (Jun 27, 1995).
/12/ Alabama Revenue Ruling 98-005 (Jun 18, 1998).
/13/ 504 U.S. 298 (1992).
/14/ IRC section 1361.
Law (commentary and citation)
Regs (commentary and citation)
Cases (commentary and citation)
§§§ Law §§§
§274(d)
§§§ Regs §§§
§§§ Cases §§§
This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
This is about Activity Based Costing - methods to cut costs, management accounting, management information systems, decision support systems - in general about being a manager.
From Banking Records
From Customer Records
From Signed Documents
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
What to do:
An individual is considered to be a sole proprietor for federal tax purposes if the individual operates his or her business through a domestic limited liability company (LLC) and does not elect for that LLC to be taxed as a corporation (using Form 8832). In such cases, the LLC is disregarded for federal tax purposes. As a result of this treatment, the individual owner is subject to the same federal tax requirements as sole proprietors, including the requirement to obtain an EIN. At the individual owner's option, the disregarded LLC may request that a number be assigned to it in addition to the number assigned to the individual owner as a sole proprietor. Please know and understand this is the Federal Tax Treatment and -
- May not be the same requirements for state income tax reporting
- Does not effect the legal status for limited liability
In addition, if the disregarded LLC has employees, a second number is required for federal tax purposes to report and pay employment taxes. A second number is also required if the LLC is recognized for employment tax purposes as permitted under Notice 99-6.
To obtain an employer identification number, you must complete Form SS-4, Application for Employer Identification Number. You can also get this form at most Social Security Administration and IRS Office.
If you already have an EIN and the organization or ownership of your business changes, you may need to apply for a new number. Some of the circumstances under which a new number is required are as follows:
Assistance - What to do
Forms - Checklists - Etc.
Financial Statement Presentation
Notes to Financial Statements
How to Make Entries
What Kind of Records to Keep
Bookkeeping Methods - Cash, Accrual and Other
How the Business Entity Affects the Recording
Sole Proprietor
Corporation - C & S
Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company
Trusts
Tax Exempt
Alerts & Dangers - Risks
Asset Protection
Your Defense
startup_entity_choices.htm
