Planning Potpourri

Another LLC Myth: Conventional wisdom may be “conventional” but not always sound.  January Practical Planner evaluated the myth that using an S corporation in contrast to an LLC will save you payroll taxes and avoid IRS audits. Another LLC myth is that a one member LLCs, which is treated as a disregarded entity for income tax purposes, is cheaper then a multi-member LLC, since you don’t file a partnership tax return. Right? Look at some IRS stats: Audit rate for Schedule Cs with gross receipts of $200,000+ 3.2%, Schedule Cs with gross receipts $100,000-$200,000 4.2%. Audit rate for partnerships and S corporations 0.4%. What’s it cost to handle an audit? Do the math. A disregarded entity may not save you any accounting fees. Furthermore, adding a member adds other advantages too. While a 1 member disregarded LLC can provide asset protection for suits relating to the entity (e.g. a tenant sues you as landlord, your personal assets may be protected), it does not afford protection from outside claims (you’re sued for malpractice and own valuable real estate in a single member LLC). In contrast if you have other real members (not .001% held by a child) a claimant levying on your LLC may only be able to obtain a charging order under state law (not become a substitute member). Further, if you’re sued and have a 1 member LLC the claimant would argue to see your entire personal tax return Form 1040 to see the data relating to your LLC. However, if you have another member and file a partnership return, the claimant might be limited to seeing just that partnership return, not your personal return.


Dealing in Currency- Pitfalls for the Unwary: Most businessmen and women are aware that if they deposit or withdraw more than $10,000 in cash, the bank must prepare and file with the IRS a Currency Transaction Report. Similarly, if a trade or business receives more than $10,000 in cash from a customer, the business must file a Form 8300 with the IRS listing the customer, his or her address and social security number.  What most of us are unaware of is that if a person "structures" a transaction by depositing or withdrawing $3,500 a day over a short period of time to avoid the $10,000 rule or pays for goods or services worth more than $10,000 by breaking down the payment into smaller amounts, that person could be prosecuted, go to federal prison and , to add insult to injury, have the government seize the entire amount. This can be clean money and the transaction can be perfectly legitimate. Structuring a transaction to avoid or evade the reporting requirements by banks or trades or businesses is illegal. Most banks file "Suspicious Activity Reports " when its compliance departments see this type of currency activity. Additionally, it is a crime to aid and assist in structuring or for you accountants or lawyers out there to counsel someone to structure. As the duty shift officer in Hill Street Blues said before every shift: "Be careful out there." Thanks to Lawrence S. Horn, Esq. Chair, Business Crimes and Tax Litigation Departments, Sills Cummis & Gross P.C., Newark, New Jersey.

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