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#3419 - 08/17/05 09:26 PM Advantage of LLC taxed as C corp....vs. actual C corp?
HouRealTx Offline
New Member

Registered: 08/17/05
Posts: 5
Let's say someone wants C corporation tax treatment. Is there any advantage to just forming an LLC and then electing C corporation tax treatment?

Advantages I can see are:

1) charging order protection against personal judgment creditors

Disadvantages:

1) Lack of formality and documentation of LLC decisions, such as the decision to accumulate earnings could create trouble if the IRS desires justification of the earnings accumulation.

If someone runs an LLC thats taxed as a C corp. without documenting major decisions (due to the relaxed formality of an LLC) this could create trouble right?

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#3420 - 08/20/05 08:24 AM Re: Advantage of LLC taxed as C corp....vs. actual C corp?
Ryan Offline
Expert

Registered: 08/19/05
Posts: 970
Loc: SLC, Utah
There's nothing to keep you from observing standard corporate formalities with an LLC, which may be a good idea with what you have in mind. However, with an LLC you are not REQUIRED to do so as a matter of law.

In my opinion, the only time a C corp is better than an LLC taxed as a C corp is if the entity plans to go public. In that case, you'll need to be able to quickly buy and sell ownership interests. Corporations are good for this; LLC's are not.

Also, a little known fact is that an LLC can file IRS form 8832 to elect C corp taxation, and THEN elect S corp taxation by filing form 2553. This means the S corp is more or less obsolete.

Regards,

W. Ryan Fowler
wrf90@hotmail.com

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#3421 - 08/20/05 10:56 PM Re: Advantage of LLC taxed as C corp....vs. actual C corp?
Jay Adkisson Offline
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Registered: 06/05/04
Posts: 1108
Loc: Newport Beach, Orange County, ...
An LLC could elect to be treated as a corporation for tax purposes, and then not make the S Election, which would leave it taxed as a C. Though rare is it that anybody would want to be taxed as a C corporation, unless they were going to more or less immediately take the company public, because of the double-taxation issue.

The requirement that the corporate formalities appropriate to that entity be followed is a condition of the entity being respected as an entity and not the alter ego of the owner, and is not a statutory requirement of the tax code.

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#3422 - 08/20/05 11:35 PM Re: Advantage of LLC taxed as C corp....vs. actual C corp?
Ryan Offline
Expert

Registered: 08/19/05
Posts: 970
Loc: SLC, Utah
I agree with Jay, and would expand upon what he said by saying that holding annual meetings, keeping minutes, and doing other things that are typically required of corporations but not of LLCs is still a good idea for an LLc, because it further insulates your company from an alter-ego challenge.

Regards,

Ryan F
wrf90@hotmail.com

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#3423 - 10/05/05 02:37 PM Re: Advantage of LLC taxed as C corp....vs. actual C corp?
R. D. Clark Offline
New Member

Registered: 10/05/05
Posts: 1
I believe there might be some advantages to an LLC taxed as a "C". I am not a CPA but I believe there are some things that you can write off such as Health Ins that are totally deductable in a C that are not in an S. Also as a realestate investor I believe the amout of passive income your are allowed to have in an S election is limited. I believe you can setup as an LLC for better liability protection (charging order) taxed as a "C" and then if need be have another LLC than is not a C that manages properties or povides a service that removes profits from the C, thus eliminating the double taxation problem.

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#3424 - 10/05/05 06:25 PM Re: Advantage of LLC taxed as C corp....vs. actual C corp?
Ryan Offline
Expert

Registered: 08/19/05
Posts: 970
Loc: SLC, Utah
Some people will set up a limited partnership or one LLC, and then have a 2nd LLC elect C corp tax status and act as the entity's managing member or general partner. Then all C corp revenue goes towards the health plans of the partners/members, which is tax deductible. Leftover funds in the LLC/C corp could be taken out as management fees.

I wouldn't try this without a knowledgable tax professional, however!

Regards,

W. Ryan Fowler
www.pfshield.com
800-798-2008
privacyconsultant@hushmail.com

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#3425 - 10/08/05 02:33 PM Re: Advantage of LLC taxed as C corp....vs. actual C corp?
Jay Adkisson Offline
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*****

Registered: 06/05/04
Posts: 1108
Loc: Newport Beach, Orange County, ...
As Ryan says, you need to visit with a tax attorney or CPA about this. It is easy to blow the tax treatment of business entities in such a way that you will be worse off that if you did nothing at all.

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