Federal and State Taxation of Limited Liability Companies 2009

Front Cover
Federal and State Taxation of Limited Liability Companies provides clear and reliable guidance on what the latest tax treatment is for limited liability companies and what it means for your clients or your business. It answers all of your questions with an analysis of all federal tax issues applicable to LLCs with detailed references to related Code Sections and Treasury Regulations, plus cases, revenue rulings and private letter rulings. It provides a state-by-state analysis of state tax laws and filing requirements in all 50 states and the District of Columbia, with references to the applicable tax forms and places of filing listed. It explains how to prepare the most common LLC tax forms, state tax forms, checklists, practice tips, tables, and examples. This comprehensive manual offers scrupulous and exhaustive coverage of LLC taxation that accountants, tax attorneys, and CPAs working with LLCs will find invaluable.
 

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Contents

Introduction
1
Applicability of Partnership Tax Rules
4
Summary of LLC Laws
5
Formation of LLCs
7
Purposes for Which LLCs Can Be Formed
8
Membership Interests 1205 Duration of LLCs
17
Management of LLCs
18
Rights of Members 1208 Limited Liability
19
Capital Accounts
411
SelfEmployment and Employment Taxes
413
Members of the
414
Nonmember Employees
418
Accounting Methods and Procedures
421
Cash and Accrual Methods of Accounting
422
LongTerm Contracts
427
Fiscal Year
436

Restrictions on Transfer
21
Withdrawal of Members
22
Advantages and Disadvantages of LLCs
23
Advantages over C Corporations
25
Advantages over S Corporations 1304 Advantages over Partnerships
30
Disadvantages of LLCs
31
Comparing Business Entities
35
Special Issues Regarding S Corporations and LLCs
41
LLC Ownership of S Corporations
43
Advantages of S Corporations over LLCs
45
Advantages of LLCs over S Corporations
46
Comparison of LLC to Qualified Subchapter S Subsidiaries
49
Other Subchapter S Issues
50
Classification of LLCs
51
Overview
52
Partnership Classification 1503 Corporation Classification
53
SingleMember Disregarded Entity Classification
57
Foreign
62
Publicly Traded LLCs
64
Community Property and Spousal LLCs
65
Classification Election
70
Termination of LLC 1510 Transition Rules
75
Ruling Requests 1512 State Tax Classification
76
Law Before 1997
79
Contributions
87
Contributions to LLC Classified as Partnership
88
Contributions to LLC Classified as Corporation
94
Contribution of Appreciated and Depreciated Property
95
Contribution of Services
97
Contributions Treated as Disguised Sales
101
Taxation of LLC Income
113
Taxable Income
114
Character of Gain or Loss
116
Organization Syndication and StartUp Expenses
128
Allocations
131
General Rules
132
Special Allocations
135
Allocations Related to Contributed Property
169
Allocations with Respect to BuiltIn Loss Property 1805 Retroactive Allocations and Varying Interest Rule
183
Family Allocations
188
Basis and Members Share of Debt
191
Effect of Liabilities on Basis
203
Distributions
213
Property Distributions
216
Marketable Securities Distributions
225
Disproportionate Distributions
229
Section 754 Election
243
TwoYear Optional Basis Adjustment
246
Section 732d Required Basis Adjustment 11009 Mandatory Basis Adjustment Following Distribution of BuiltIn Loss Property
248
Distributions to Retiring and Deceased Members
249
Loss Recognition to Member 11012 Tax Consequences to LLC 11013 Draws Advances and Loans
258
Reorganizations
261
Conversion from Limited Partnership to
268
Conversion of General Partners of Limited Partnership to LLC 11104 Transfer of Selected Partnership Assets to
270
Conversion from LLP to LLC 11106 Conversion from LLC to Corporation Incorporation of LLC
271
Conversion from C Corporation to
280
Conversion from S Corporation to
284
Conversion of Subsidiary Corporation to
288
Conversion of LLC into Limited Partnership
292
Transfers of LLC Interests Between Related Companies 11112 Reincorporation
294
DropDown of Assets into Subsidiary
295
Conversion from Trust to LLC 11115 Division of
296
Conversion as a Result of Change in Classification Election 11117 Conversion from SingleMember LLC to LLC Classified as a Partnership
306
Conversion from an LLC Classified as a Partnership to a Disregarded
309
Merger Between Two LLCs
312
Merger of Corporation into
320
Merger of LLC into C Corporation 11122 Merger of LLC into Limited Partnership
325
Use of Noncorporate LLC to Facilitate Corporate Mergers
326
Recapitalizations 11125 Section 355 Splitoff and Spinoff
332
Terminations
333
Cessation of Business
334
Transfer of 50 Percent of
336
Mergers and Consolidations 11205 Divisions
340
Change in Classification Election 11207 Transactions Resulting in SingleMember
341
Loss Limitations
343
Passive Losses
351
Related Party Transactions
354
AntiAbuse Rules
355
f1307 BuiltIn Losses
356
Class of Liabilities Rules
357
Special Allocation Rules
361
General Tax Principles
362
Payments and Benefits to Members
363
Guaranteed Payments
365
Payments to a Member Other Than in Capacity as a Member
366
Distributive Share of Income
369
Disguised Sale Payments
370
Fringe Benefits
374
Section 736 Payment 11408 Differences Between Guaranteed Payment Distributive Share of In come and Other Payments
377
Transfer of Membership Interests
379
Basis
381
Allocation of Income and Loss Between Buyer and Seller
383
LikeKind Exchanges
384
Involuntary Conversions and Condemnations 11507 Character of Gain and Loss
389
Code Sec 754 Election 11509 Mandatory Basis Adjustment for LLC with BuiltIn Losses
410
Closing of the Tax Year
438
Consolidated Tax Returns for Subsidiaries
439
Ruling Requests
440
Unified Audit Rules
441
Statute of Limitations for Tax Returns
445
Liability for Taxes
447
Foreign LLCs
449
Formation of Foreign LLCs 11803 Classification of Foreign LLCs 11804 Ruling Requests
455
Withholding Taxes on Wages 11806 Tax Returns and Reporting Requirements
456
TI1807 SecuritiesTrading LLCs
461
Withholding Taxes on Payments to Foreign LLCs
462
ForeignOwned Domestic LLCs
467
Taxation of Foreign Members
468
TerritorialBased Taxes 11904 The United States as a Tax Haven Country 11905 Foreign Tax Credit
477
Treaty Benefits for
479
Investment LLCs
481
Transfer of Investment Property to
482
Publicly Traded LLCs
487
Estate and Gift Tax Planning
489
Advantages of
490
Gifts
491
Valuation DiscountsGeneral
493
IRS Challenges to Valuation Discounts
495
Types of Valuation Discounts
522
Swing Vote Premium
525
Appraisals
526
Home Ownership 12109 Code Sec 704e Family Partnerships
527
Deferral of Estate Tax Payments 12111 Disclaimers
528
Federal and State Filing Requirements
529
State Forms
536
S Corporations fl 1907 Sale of Membership Interests
539
State Tax Laws
567
Alabama
587
Alaska
589
Arizona
590
Arkansas
594
California
598
Reporting Requirements
600
Colorado
605
Connecticut
608
Delaware
611
District of Columbia
615
Florida
616
Georgia
621
Hawaii
622
Idaho
629
Illinois
632
Indiana
633
Iowa
638
Kansas
641
Kentucky
644
Louisiana
646
Maine
649
Maryland
652
Massachusetts
662
Michigan
663
Minnesota
667
Mississippi
672
Missouri
673
Montana
675
Nebraska
679
Nevada
683
New Hampshire
685
New Jersey
692
New Mexico
695
New York
697
North Carolina
703
North Dakota
706
Ohio
707
Oklahoma
710
Oregon
716
Pennsylvania
720
Rhode Island
723
South Carolina
725
South Dakota
730
Tennessee
732
Texas
734
Utah
737
Vermont
740
Virginia
741
Washington
745
West Virginia
747
Wisconsin
752
Wyoming
766
24
767
Asset Protection Charging Orders and Creditors Rights 25 Series LLCs
775
Appendix AForms
785
Appendix BSummary of Revenue Rulings Revenue Procedures and Announcements
815
Appendix CSummary of Private Letter Rulings and General Counsel Memoranda
827
Table of Internal Revenue Code Sections
887
Table of Treasury Regulations
893
Table of Internal Revenue Service Releases
903
Table of Cases
909
Index
913
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