Discussion:Corporation vs Individual

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Discussion Forum Index --> Tax Questions --> Corporation vs Individual


Infotax (talk|edits) said:

27 March 2007
Hi, Is it always better to have individual or Corporation as member of LLC? Any comparison would be appreciated.

Glmpllc (talk|edits) said:

27 March 2007
...rarely is there ever an absolute when evaluating entity/ownership choices...usually facts and circumstances driven...so to answer your question directly, No.

Infotax (talk|edits) said:

27 March 2007
If the member has 10% ownership then what is your answer. Which is better.

JR1 (talk|edits) said:

March 27, 2007
Same answer. That's not information. Entity selection is an important issue.

Infotax (talk|edits) said:

27 March 2007
My question is "Stock Ownership Through LLCs. I have a client has c corporation and wants to buy 10% ownership interest in llc. and his concern is wheather he should buy this ownership interest through personal name or through corporation. I need to know which is better. If you can refer me any publication I would appreciate it. I wold also appreciate if you can advice which is better and why?

Thanks

Bushmaster (talk|edits) said:

27 March 2007
I can not think of a single reason to ever own appreciable property in a C Corp.

Pegoo (talk|edits) said:

27 March 2007
What does he plan to do with his 10% of the LLC and how is the LLC set up? C-Corps are not allowed to have S-SCORP interest. There is alot to consider on that transaction. Ultimately, what does your client want to achieve?

Infotax (talk|edits) said:

27 March 2007
Can you tell me why the IRS has given this provision either buy stock ownership interest in llc through corporation or personal level. I am sorry about taking it so long but i am trying to justify my advice to my client. I am also researching through irs side but still could not reach on conclusion.

Thanks for your help.

Bushmaster (talk|edits) said:

27 March 2007
Again, "I can not think of a single reason to ever own appreciable property in a C Corp. " There is none.

Infotax (talk|edits) said:

27 March 2007
IT IS A REGULAR LLC. FILE RETURN WITH FORM 1065. Nature of business is gasoline sale. He wants to buy 10% ownership interest in this business. His question is wheather he should buy the stock through llc or personalal level. Is their any advantage or disadvantage becomming member or buying ownership interest through corporation or personal level. If you had client and had to give the advice what it would be?

Pegoo (talk|edits) said:

27 March 2007
And your advice to the client is? And your client wants to purchase it through a CCORP? There is alot of information missing regarding this transaction. Your client can do whatever he please (given that he can't blame anyone later for his own mistakes).

KatieJ (talk|edits) said:

28 March 2007
Infotax, I'm sure you understand that it is virtually impossible (since 1986) to get appreciated property out of a Subchapter C corporation without paying tax on the gain twice -- once at the corporate level and again on the dividend when the gain is distributed out to the shareholder. That's why Bushmaster says there is no reason to own appreciable property through a C corporation. I don't know whether the 10% interest in the LLC is an asset that is likely to increase in value, but if it is, you probably wouldn't want him to hold it in the C corporation, all else being equal.

Also, if your client owns the LLC interest directly, everything that flows through to him from the LLC will keep its character as if he had received it directly. If he owns it through the C corporation, it will be taxed as whatever it is (ordinary income, capital gain, etc.) at the corporate level, but to the extent the income is distributed out to him as a dividend (or as salary, for that matter), it will all be ordinary income.

If more than one state is involved (e.g., the corporation does business in State A, the LLC is in State B, or either or both are multistate), you need to understand how each of the states involved will tax the business(es) based on the structure. There is a lot of variation from state to state.

The liability limitation issues are a matter for the client to discuss with his attorney. There are some differences from state to state in the kind of liability protection afforded by an LLC. But these are not issues for a tax pro to be dealing with unless you also happen to be a lawyer.

Corptaxhelp (talk|edits) said:

March 28, 2007
Bushmaster: several of my clients buy property inside a c-corp because they are not citizens of the United States of these here Americas. As foreigners, they can't be an s-corp, LLC or other pass-through entity. They need the corporate entity for liability / asset protection. So, there you go Bushmaster, now you have a single reason to hold real estate in a c-corp.

As bad as an idea as it is, there is a lot of real estate in c-corporations today. In many cases, the property was purchased 30, 40 or 50 years ago before other tax entities were available.

It isn't just folks right off the turnip truck who put real estate inside a c-corp. The Four Seasons hotel in Hawaii was held by a C Corporation as was a hotel in New York on Central Park. Those two properties alone sold in asset sales for $900 million and the shareholders were stuck paying nearly $400 million in corporate taxes. Ouch! That's real money no matter who you are.

As KatieJ notes, once you get property into a c-corp, it is difficult to get it out in a tax favored way. There are folks who specialize in helping shareholders who have highly appreciated assets -- usually real estate -- captured in a C corporation. Those folks (disclaimer: I am one) purchase the stock of c-corp to own the underlying real estate. Instead of paying a hefty corporate tax, the shareholders get long term capital gains treatment when they sell their stock. Shareholders will always net more money on a stock sale than on an asset sale even when the buyer is picking up the property at a tax-affected rate.

JR1 (talk|edits) said:

March 28, 2007
Info, try asking the entire question. This is too much cat and mouse.

Jdugancpa (talk|edits) said:

28 March 2007
Thank you, Corptaxhelp and JR. I started to respond to this thread yesterday that it was one of the dumbest I had read. Infotax, if you need assistance evaluating something for a client, no one reading what you have written thus far knows enough of the facts to be of any assistance whatever because there is NO ONE CORRECT ANSWER for every situation.

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