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Golden Gate University School of Taxation

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Golden Gate University School of Taxation

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    1. © 2004 by Daniel Raiskin Golden Gate University School of Taxation Tax Expert Lecture Series January 29, 2004 Entity Updates Daniel Raiskin

    2. © 2004 by Daniel Raiskin REGARDING THE DISREGARDED – THE SINGLE MEMBER LLC by Daniel L. Raiskin Raiskin & Revitz

    3. © 2004 by Daniel Raiskin Disregarded entity designated in the “check-the-box” regs

    4. © 2004 by Daniel Raiskin Disregarded entity designated in the “check-the-box” regs Check-the-box regulations are set out in Treas. Reg. §301.7701-2

    5. © 2004 by Daniel Raiskin Disregarded entity designated in the “check-the-box” regs Check-the-box regulations are set out in Treas. Reg. §301.7701-2 Taxpayer may elect “corporation” treatment on form 8832

    6. © 2004 by Daniel Raiskin Disregarded entity designated in the “check-the-box” regs Check-the-box regulations are set out in Treas. Reg. §301.7701-2 Taxpayer may elect “corporation” treatment on form 8832 Otherwise, single member LLC is treated as a tax “nothing”

    7. © 2004 by Daniel Raiskin California conforms to the “check-the-box” rules

    8. © 2004 by Daniel Raiskin California conforms to the “check-the-box” rules R&T §23038 provides that a single member LLC (disregarded entity) must:

    9. © 2004 by Daniel Raiskin California conforms to the “check-the-box” rules R&T §23038 provides that a single member LLC (disregarded entity) must: Pay the $800 minimum franchise tax

    10. © 2004 by Daniel Raiskin California conforms to the “check-the-box” rules R&T §23038 provides that a single member LLC (disregarded entity) must: Pay the $800 minimum franchise tax Pay the gross receipts fee

    11. © 2004 by Daniel Raiskin California conforms to the “check-the-box” rules R&T §23038 provides that a single member LLC (disregarded entity) must: Pay the $800 minimum franchise tax Pay the gross receipts fee File a return (first page only)

    12. © 2004 by Daniel Raiskin Does a disregarded entity need a tax id number?

    13. © 2004 by Daniel Raiskin Does a disregarded entity need a tax id number? IRS instructions state no T.I.N. is needed for single member LLC

    14. © 2004 by Daniel Raiskin Does a disregarded entity need a tax id number? IRS instructions state no T.I.N. is needed for single member LLC The IRS never tried to open a bank account for a single member LLC

    15. © 2004 by Daniel Raiskin Does a disregarded entity need a tax id number? IRS instructions state no T.I.N. is needed for single member LLC The IRS never tried to open a bank account for a single member LLC Instructions state you should indicate on the SS-4 that the LLC is a “disregarded entity”

    16. © 2004 by Daniel Raiskin

    17. © 2004 by Daniel Raiskin Interesting uses for single member LLC’s

    18. © 2004 by Daniel Raiskin Interesting uses for single member LLC’s Section 1031 exchanges of real property

    19. © 2004 by Daniel Raiskin Interesting uses for single member LLC’s Section 1031 exchanges of real property Ownership of “S corporation” stock

    20. © 2004 by Daniel Raiskin Interesting uses for single member LLC’s Section 1031 exchanges of real property Ownership of “S corporation” stock Acquisitions of business or assets

    21. © 2004 by Daniel Raiskin Interesting uses for single member LLC’s Section 1031 exchanges of real property Ownership of “S corporation” stock Acquisitions of business or assets Liquidations of corporations with potential liabilities

    22. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange

    23. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange IRS allowed up-leg property to single member LLC in several rulings

    24. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange IRS allowed up-leg property to single member LLC in several rulings PLR 9751012: three corporations transferred property, merged, took up-leg properties in new LLC’s

    25. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange IRS allowed up-leg property to single member LLC in several rulings PLR 9751012: three corporations transferred property, merged, took up-leg properties in new LLC’s PLR 9807013: limited partnership exchanged; up-leg into new LLC

    26. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange Lenders require “single purpose, bankruptcy remote” entity to hold property

    27. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange Lenders require “single purpose, bankruptcy remote” entity to hold property Transfer to LLC keeps taxpayer out of chain of title – avoiding possible liabilities

    28. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange Rev. Proc. 2000-37 allows accommodator to use single member LLC to hold property

    29. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange Rev. Proc. 2000-37 allows accommodator to use single member LLC to hold property Section 1031(a)(2)(D) prohibits exchange of partnership interests

    30. © 2004 by Daniel Raiskin Using a disregarded entity in a Section 1031 exchange Rev. Proc. 2000-37 allows accommodator to use single member LLC to hold property Section 1031(a)(2)(D) prohibits exchange of partnership interests PLR 200201024 permits a multi-member LLC to be disregarded

    31. © 2004 by Daniel Raiskin

    32. © 2004 by Daniel Raiskin

    33. © 2004 by Daniel Raiskin

    34. © 2004 by Daniel Raiskin

    35. © 2004 by Daniel Raiskin Using a single member LLC to hold “S corporation” stock

    36. © 2004 by Daniel Raiskin Using a single member LLC to hold “S corporation” stock Owner of LLC is treated as the shareholder of “S corporation”

    37. © 2004 by Daniel Raiskin Using a single member LLC to hold “S corporation” stock Owner of LLC is treated as the shareholder of “S corporation” PLR 200008015 allowed “S corporation” stock to be held by a partnership of taxpayer and his single member LLC

    38. © 2004 by Daniel Raiskin Using a single member LLC to hold “S corporation” stock Owner of LLC is treated as the shareholder of “S corporation” PLR 200008015 allowed “S corporation” stock to be held by a partnership of taxpayer and his single member LLC More rulings to follow regarding husband and wife

    39. © 2004 by Daniel Raiskin

    40. © 2004 by Daniel Raiskin

    41. © 2004 by Daniel Raiskin

    42. © 2004 by Daniel Raiskin

    43. © 2004 by Daniel Raiskin Single member LLC can be useful for acquisitions

    44. © 2004 by Daniel Raiskin Single member LLC can be useful for acquisitions Single member LLC can be disregarded in structuring tax-free reorganizations

    45. © 2004 by Daniel Raiskin Single member LLC can be useful for acquisitions Single member LLC can be disregarded in structuring tax-free reorganizations PLR 200252055 allowed merger into single member LLC

    46. © 2004 by Daniel Raiskin Single member LLC can be useful for acquisitions Single member LLC can be disregarded in structuring tax-free reorganizations PLR 200252055 allowed merger into single member LLC Technique can be used for corporate or partnership acquisitions

    47. © 2004 by Daniel Raiskin

    48. © 2004 by Daniel Raiskin

    49. © 2004 by Daniel Raiskin

    50. © 2004 by Daniel Raiskin

    51. © 2004 by Daniel Raiskin Use a single member LLC to liquidate a corporation

    52. © 2004 by Daniel Raiskin Use a single member LLC to liquidate a corporation Interpose LLC as shareholder of corporation

    53. © 2004 by Daniel Raiskin Use a single member LLC to liquidate a corporation Interpose LLC as shareholder of corporation On liquidation, transfer assets to LLC

    54. © 2004 by Daniel Raiskin Use a single member LLC to liquidate a corporation Interpose LLC as shareholder of corporation On liquidation, transfer assets to LLC Allow statute of limitations to expire

    55. © 2004 by Daniel Raiskin Use a single member LLC to liquidate a corporation Interpose LLC as shareholder of corporation On liquidation, transfer assets to LLC Allow statute of limitations to expire Useful for “S corporation” liquidation

    56. © 2004 by Daniel Raiskin

    57. © 2004 by Daniel Raiskin

    58. © 2004 by Daniel Raiskin

    59. © 2004 by Daniel Raiskin

    60. © 2004 by Daniel Raiskin

    61. © 2004 by Daniel Raiskin

    62. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife

    63. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife How should LLC be treated? Single member or partnership?

    64. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife How should LLC be treated? Single member or partnership? Rev. Proc. 2002-69 allows either treatment

    65. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife How should LLC be treated? Single member or partnership? Rev. Proc. 2002-69 allows either treatment IRS will accept either classification if:

    66. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife How should LLC be treated? Single member or partnership? Rev. Proc. 2002-69 allows either treatment IRS will accept either classification if: No other members allowed

    67. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife How should LLC be treated? Single member or partnership? Rev. Proc. 2002-69 allows either treatment IRS will accept either classification if: No other members allowed LLC does not elect corporation treatment

    68. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200339026 an LLC owned numerous “S corporations”

    69. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200339026 an LLC owned numerous “S corporations” H was sole owner and resident of community property state

    70. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200339026 an LLC owned numerous “S corporations” H was sole owner and resident of community property state H and W transferred LLC to living trust

    71. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200339026 an LLC owned numerous “S corporations” H was sole owner and resident of community property state H and W transferred LLC to living trust Section 1361(c)(2)(A)(i) allows grantor trust shareholder if owned by one individual

    72. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 9729025, IRS confirmed that revocable trust in community property state can own “S corporation” stock

    73. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 9729025, IRS confirmed that revocable trust in community property state can own “S corporation” stock Treas. Reg. §1.1361-1(e)(2) treats H and W in community property state as one shareholder

    74. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200102037, LLC was owned by taxpayer and her grantor trust

    75. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200102037, LLC was owned by taxpayer and her grantor trust IRS disregarded the grantor trust

    76. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200102037, LLC was owned by taxpayer and her grantor trust IRS disregarded the grantor trust Therefore, LLC was a single member LLC

    77. © 2004 by Daniel Raiskin Treatment of LLC owned by husband and wife In PLR 200102037, LLC was owned by taxpayer and her grantor trust IRS disregarded the grantor trust Therefore, LLC was a single member LLC Therefore, LLC was disregarded and taxpayer was sole owner of assets

    78. © 2004 by Daniel Raiskin Treatment of payroll taxes by a single member LLC

    79. © 2004 by Daniel Raiskin Treatment of payroll taxes by a single member LLC Notice 99-6

    80. © 2004 by Daniel Raiskin Treatment of payroll taxes by a single member LLC Notice 99-6 Single member LLC may report and pay using LLC’s TIN

    81. © 2004 by Daniel Raiskin Treatment of payroll taxes by a single member LLC Notice 99-6 Single member LLC may report and pay using LLC’s TIN Or, single member LLC may report and pay using member’s TIN

    82. © 2004 by Daniel Raiskin Treatment of payroll taxes by a single member LLC Notice 99-6 Single member LLC may report and pay using LLC’s TIN Or, single member LLC may report and pay using member’s TIN Method must be used consistently

    83. © 2004 by Daniel Raiskin Treatment of payroll taxes by a single member LLC Notice 99-6 Single member LLC may report and pay using LLC’s TIN Or, single member LLC may report and pay using member’s TIN Method must be used consistently Member is personally liable for tax

    84. © 2004 by Daniel Raiskin Can IRS levy on the assets of a single member LLC?

    85. © 2004 by Daniel Raiskin Can IRS levy on the assets of a single member LLC? CCM 199930013 ruled that IRS cannot levy on LLC to collect taxes owed by member

    86. © 2004 by Daniel Raiskin Can IRS levy on the assets of a single member LLC? CCM 199930013 ruled that IRS cannot levy on LLC to collect taxes owed by member State law treats LLC as separate entity

    87. © 2004 by Daniel Raiskin Can IRS levy on the assets of a single member LLC? CCM 199930013 ruled that IRS cannot levy on LLC to collect taxes owed by member State law treats LLC as separate entity LLC is disregarded for tax purposes only

    88. © 2004 by Daniel Raiskin Can IRS levy on the assets of a single member LLC? CCM 199930013 ruled that IRS cannot levy on LLC to collect taxes owed by member State law treats LLC as separate entity LLC is disregarded for tax purposes only IRS might be able to pierce LLC veil

    89. © 2004 by Daniel Raiskin Can IRS levy on the assets of a single member LLC? CCM 199930013 ruled that IRS cannot levy on LLC to collect taxes owed by member State law treats LLC as separate entity LLC is disregarded for tax purposes only IRS might be able to pierce LLC veil Note – member assets liable for single member LLC taxes

    90. © 2004 by Daniel Raiskin What if a new member joins a single member LLC?

    91. © 2004 by Daniel Raiskin What if a new member joins a single member LLC? Notice 99-5 describes consequences

    92. © 2004 by Daniel Raiskin What if a new member joins a single member LLC? Notice 99-5 describes consequences Result depends on how consideration is paid by new member

    93. © 2004 by Daniel Raiskin What if a new member joins a single member LLC? Notice 99-5 describes consequences Result depends on how consideration is paid by new member Is consideration paid to original member?

    94. © 2004 by Daniel Raiskin What if a new member joins a single member LLC? Notice 99-5 describes consequences Result depends on how consideration is paid by new member Is consideration paid to original member? Is consideration paid to LLC?

    95. © 2004 by Daniel Raiskin What if a new member joins a single member LLC? Notice 99-5 describes consequences Result depends on how consideration is paid by new member Is consideration paid to original member? Is consideration paid to LLC? Notice considers both situations

    96. © 2004 by Daniel Raiskin If consideration is paid to original member . . .

    97. © 2004 by Daniel Raiskin If consideration is paid to original member . . . New member buys half of assets

    98. © 2004 by Daniel Raiskin If consideration is paid to original member . . . New member buys half of assets Original member recognizes gain

    99. © 2004 by Daniel Raiskin If consideration is paid to original member . . . New member buys half of assets Original member recognizes gain Members contribute assets to new “partnership” under Section 721

    100. © 2004 by Daniel Raiskin If consideration is paid to original member . . . New member buys half of assets Original member recognizes gain Members contribute assets to new “partnership” under Section 721 Carryover basis and holding rules apply to original member

    101. © 2004 by Daniel Raiskin If consideration is paid to original member . . . New member buys half of assets Original member recognizes gain Members contribute assets to new “partnership” under Section 721 Carryover basis and holding rules apply to original member Remember to apply Section 704(c)

    102. © 2004 by Daniel Raiskin If the consideration is paid to the LLC . . .

    103. © 2004 by Daniel Raiskin If the consideration is paid to the LLC . . . Both members contribute assets to new “partnership” under Section 721

    104. © 2004 by Daniel Raiskin If the consideration is paid to the LLC . . . Both members contribute assets to new “partnership” under Section 721 Carryover basis and holding period rules apply to original member

    105. © 2004 by Daniel Raiskin If the consideration is paid to the LLC . . . Both members contribute assets to new “partnership” under Section 721 Carryover basis and holding period rules apply to original member Carryover rules apply to new member if he/she contributes property

    106. © 2004 by Daniel Raiskin If the consideration is paid to the LLC . . . Both members contribute assets to new “partnership” under Section 721 Carryover basis and holding period rules apply to original member Carryover rules apply to new member if he/she contributes property Remember to apply Section 704(c)

    107. © 2004 by Daniel Raiskin Using disregarded entities overseas

    108. © 2004 by Daniel Raiskin Using disregarded entities overseas Check-the-box rules permit a foreign entity to be disregarded

    109. © 2004 by Daniel Raiskin Using disregarded entities overseas Check-the-box rules permit a foreign entity to be disregarded Classification can have important foreign tax credit implications

    110. © 2004 by Daniel Raiskin Using disregarded entities overseas Check-the-box rules permit a foreign entity to be disregarded Classification can have important foreign tax credit implications Taxpayers use different tax laws to achieve favorable results

    111. © 2004 by Daniel Raiskin Using disregarded entities overseas Check-the-box rules permit a foreign entity to be disregarded Classification can have important foreign tax credit implications Taxpayers use different tax laws to achieve favorable results Announcement 2004-4 will require filing of form 8858

    112. © 2004 by Daniel Raiskin To summarize . . .

    113. © 2004 by Daniel Raiskin To summarize . . . Single member LLC is generally disregarded for tax purposes only

    114. © 2004 by Daniel Raiskin To summarize . . . Single member LLC is generally disregarded for tax purposes only Member is liable for LLC taxes

    115. © 2004 by Daniel Raiskin To summarize . . . Single member LLC is generally disregarded for tax purposes only Member is liable for LLC taxes Effect of “disregard” applies throughout income tax rules

    116. © 2004 by Daniel Raiskin To summarize . . . Single member LLC is generally disregarded for tax purposes only Member is liable for LLC taxes Effect of “disregard” applies throughout income tax rules Husband and wife may be single member

    117. © 2004 by Daniel Raiskin To summarize . . . Single member LLC is generally disregarded for tax purposes only Member is liable for LLC taxes Effect of “disregard” applies throughout income tax rules Husband and wife may be single member Multiple “disregards” are possible

    118. © 2004 by Daniel Raiskin

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