If LLCs that you have formed or that you represent have multistate operations, you may be interested in the following summary of an article that appeared recently:
4/25/2016 St. & Loc. Taxes Weekly Art. 9
State & Local Taxes Weekly
Copyright (c) 2016 Thomson Reuters/Tax & Accounting
April 25, 2016
AN UPDATE ON THE STATE TAX TREATMENT OF LLCS AND LLPS.
The owners of multistate businesses must consider a multitude of factors when deciding how to structure their business ventures, and state taxation cannot be overlooked. The accompanying charts in this article can assist in that evaluation for limited liability companies (LLCs) and limited liability partnerships (LLPs). In recent years, LLCs and, to a lesser extent, LLPs have become the popular choice for structuring or re-structuring multistate business entities. According to eye-opening IRS statistics issued in December 2015, approximately two-thirds of all Subchapter K entities are now domestic (U.S.) LLCs, surpassing all other entities types for 12 consecutive years. The charts in this article set out the various differences in the tax treatment of LLCs and LLPs across the 50 states and the District of Columbia. They discuss state tax considerations, such as conformity with the federal income tax classification rules, entity-level taxes, and potential entity-level withholding or composite return requirements. In addition, the authors hope that the endnotes will also be useful, especially those listing the growing number of states that exempt qualified investment partnerships (QIPs) or their nonresident partners from state income tax and nonresident partner withholding. (B.P. Ely and W.T. Thistle, II, 26 Journal of Multistate Taxation and Incentives, No. 2, 14 (May 2016).)
The dispute resolution provisions in LLC operating agreements are among the most important provisions in those agreements. Below are the title, the table of contents and the first paragraph of a new law journal article about LLCs and the private ordering of dispute resolution. When I read the article, I’ll post a message in this blog about its significance for LLC formation lawyers.
41 J. Corp. L. 795
Journal of Corporation Law
LLCS AND THE PRIVATE ORDERING OF DISPUTE RESOLUTION
Peter Molk & Verity Winship
Copyright (c) 2016 University of Iowa (The Journal of Corporation Law); Peter Molk; Verity Winship
The excellent new blog post under the link below addresses pitfalls in charitable bequests of stock in closely held companies. Obviously, this includes bequests of membership rights in LLCs.
Here’s the link: http://www.taxlawforchb.com/2016/04/charitable-bequests-of-closely-held-stock-tread-carefully/.
Below are the title, citation and a summary of a new law journal article about LLC business disputes. It may particularly interest North Carolina lawyers, but I suspect it will be relevant to LLC lawyers in all states.
37 Campbell L. Rev. 225
Campbell Law Review
North Carolina Issue
RESOLVING LLC MEMBER DISPUTES IN NORTH CAROLINA
James R. Burkhard
Copyright © 2015 by the Campbell Law Review; James R. Burkhard
North Carolina has a new LLC act. If LLC members assert that the managers or controlling members have in some manner breached fiduciary or contractual duties owed to the complaining members or to the LLC, how will lawyers handle such claims? This Article first considers the circumstances in which North Carolina LLC managers and members may owe fiduciary duties to other members. Assuming that there is a duty that may have been breached, what are the limits on a member bringing a direct suit either on her own behalf or on behalf of the LLC? Since direct suits will now be prohibited in many cases, the plaintiff must likely resort to bringing a derivative claim. The problems with these suits under the new law are considered in some detail. Lastly, the Article provides drafting suggestions to protect LLC members, as well as alternative methods to resolve disputes among LLC members and managers.
The latest blog post by Lou Vlahos of the Farrell Fritz law firm in his blog entitled “Tax Law for the Closely-Held Business” addresses several issues of particular interest to estate planners who handle LLC formations. The link to the post is:
Lou summarizes the issues addressed in the post as follows in quotes:
“The owners of a closely-held business confront several issues upon the death of any one of them:
- How will the decedent’s shares be valued?
- How will the decedent’s estate pay the resulting estate tax?
- To whom will the decedent’s shares be transferred?
- How will the acquiring party pay for such shares?”
For readers interested in partnership taxation: In the April 12, 2016 issue of Forbes Magazine, there is a good plain-English explanation of the sometimes quite complicated issue of when an entity taxable as a partnership is deemed to terminate for federal tax purposes.
Lawyers who handle LLC formations must decide whether their LLC forms need to be changed to reflect the U.S. Treasury Department’s new regulations concerning partnership audits. Below are title and the initial sentences in a new article in the latest Tax Notes that provides guidance on this issue:
Getting the Partnership Audit Rules Up and Running
By Donald B. Susswein and Ryan P. McCormick
Susswein and McCormick, who were involved in developing some of the concepts underlying the new partnership audit rules, describe the major procedural issues that the IRS will likely face in implementing section 6226, which allows audited partnerships to pass through the tax liability for audit adjustments to their direct and indirect partners. They suggest several procedural steps and regulatory rules that may help the IRS minimize its administrative burden, while ensuring that the new rules are implemented consistently with the underlying intent of Congress. The views expressed are the authors’ and not necessarily those of their organizations.
For an account of the origin of the theory underlying discounts for marketability under New York law that is both sophisticated and, believe it or not, charming, click here: http://www.nybusinessdivorce.com/2016/04/articles/valuation-discounts/the-birthing-of-new-yorks-marketability-discount-in-fair-value-cases-a-family-affair/.
Steven Gorin is a St. Louis, Missouri tax lawyer and the author of a massive set of materials about federal income tax issues and estate and gift tax issues affecting business owners and their business entities and trusts. He also publishes extremely useful quarter newsletters about these issues. The table of contents alone for the above materials is 41 pages long. I have begun following Steve’s newsletters, and I provide links to them in my websites whenever these newsletters appear. I also highly recommend his materials (which, despite Steve’s modest disclaimer, I view as a massive specialized treatise). If you want to view and download his materials or subscribe to his newsletters, click here:
LLC formation lawyers often have to advise their clients about how to classify people who work with them as employees or independent contractors. The following is the title and first couple of paragraphs of an excellent new article on this subject in Tax Analysts Federal Tax Notes (the best daily source on federal tax developments that I know of):
Clarifying the Tax Classification of Workers
By Donald T. Williamson
Misclassifying workers as independent contractors or employees can result in substantial adverse tax consequences for both workers and employers.
For example, Lyft Inc., a ride-hailing company based in San Francisco, recently agreed to pay $12.25 million to settle a class action lawsuit by drivers seeking recognition as employees instead of independent contractors.