Discussion:Gay Spouses in LLC
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| {{ForumReplyPost|UserID=Kevinh5|Date=17 February 2009|Text=that would be great precedent to show that all such marriages are legal. some couple might surely sacrifice some assets for the greater cause.}} | {{ForumReplyPost|UserID=Kevinh5|Date=17 February 2009|Text=that would be great precedent to show that all such marriages are legal. some couple might surely sacrifice some assets for the greater cause.}} | ||
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| + | {{ForumReplyPost|UserID=Dingodile|Date=17 February 2009|Text=I know those people are out there, but most of my clients have found more satisfaction in saving money and stress instead of becoming famous legal precedent.}} | ||
Revision as of 22:53, 17 February 2009
Discussion Forum Index --> Advanced Tax Questions --> Gay Spouses in LLC
Discussion Forum Index --> Tax Questions --> Gay Spouses in LLC
| 16 February 2009 | |
| I have a gay couple as clients, and they are married under California law, but their marriage is not recognized federally. One of them owns an LLC for his consulting business -- he had business partners up until this year, and so has been filing a 1065 partnership return. His husband is a real estate agent working for a large brokerage (technically an independent contractor receiving a 1099-MISC). They are considering having the husband join the LLC for several reasons: to continue filing a 1065 (he wants to continue to have a separate return, convinced it reduces audit likelihood), for liability protection for the husband, and to put all of their household business into one "bucket," in their words. So my question to all of you, which they have asked me -- are there any downsides of doing this? Given they will be running two separate businesses under one roof, they will need to track activities, and each take their correct share of taxable income. But are there other things I should be cautioning them about? Any other risks? Any advice or suggestions would be greatly appreciated - thank you! | |
| 16 February 2009 | |
| If he wants to continue to have a separate return, he can elect to treat the SMLLC as an S-corp and file an 1120S. The real estate agent should create a separate LLC for his activities. | |
| 16 February 2009 | |
| Thanks, AEM. What are the reasons the real estate agent should create the separate LLC? They had also mentioned wanting to pay only one $800 LLC fee by combining. Thanks, again! | |
| 16 February 2009 | |
| I said that only because he wants to have limited liability. I should have used the word "could" in place of "should".
I suppose the other operation could be treated as a separate division of the same legal entity, but I don't know whether state law (or the LLC operating agreement, which could be amended easily) would be a stumbling block to that. There would also be the added cost of bookkeeping associated with maintained two general ledgers and then combining them for tax return purposes, which may or may not offset the $800 savings. | |
| 16 February 2009 | |
| Thanks, AEM! Does anyone else agree or have any other advice or opinions? | |
| 16 February 2009 | |
| No, don't do this. That's my opinion. For one thing, it sounds like two separate business purposes. You have many issues, licensing is one of them (i.e. the consultant is not an RE agent). | |
| 16 February 2009 | |
| Good point. The two separate business purposes was my initial objection; although I know corporations can get around that, LLCs are another matter. I didn't think of licensing, though. | |
| 17 February 2009 | |
| Thanks for the help. I talked to them again this afternoon, and these two guys are really stuck on combining their businesses into a single LLC. Apparently their last CPA convinced them that LLCs filing partnership returns have a MUCH lower probability of being audited by the IRS than single-member LLCs filing on schedule C. From what I can find online, this seems to be true. So just so I can tell them accurate info, is it illegal for them to do what they want? Can you point me to anything that would prove this to them? They claim that LLCs can be set up for multiple business purposes (again this seems to be true from what I can find), and that as long as the only person selling real estate is licensed, they are OK. Any help will be MOST appreciated - thanks, again! | |
| 17 February 2009 | |
| I'm still trying to figure out why you think this situation is different because your married clients are of the same sex? Any married client could face this issue. The only difference being the availability of the QJV. | |
| 17 February 2009 | |
| A husband and wife involved in a partnership automatically file a 1065; not true with these two.
Again, they could always elect to file 1120S. Why are they so worried about being audited? | |
| 17 February 2009 | |
| please double check that, AEM.
I think that if they were involved in a partnership they'd automatically file a 1065 also. | |
| 17 February 2009 | |
| Under California law, a real estate agent or broker may not operate under an LLC. | |
| 17 February 2009 | |
| What kind of consultancy does the consultant have? What field does he consult? Does it have anything to do with real estate?
Warren Buffett can run innumerable businesses under one roof. Most people can't. In fact, I question whether BH can continue on in the conglomerate manner after Buffett dies. I still remember ITT! Further, I don't think a real estate agent can have a non-licensed partner. In fact, if he's just an agent, doesn't he have to be connected to a broker? Can he be in a "partnership" like this? If you decide to do this, have them sign a statement that you advised them to see an experienced business attorney. P.S. See Riley's post above, he got in before I finished the post. | |
| 17 February 2009 | |
| Thank you all for this info. I only pointed out that they're same-sex in case their marriage at the state level and not at the federal level complicated this in any way. FYI the consultant's business has nothing to do with real estate - it's completely unrelated. And the agent is with a brokerage already, though as an "independent contractor" techinically, which is common in California. Riley, I think this your input is the "smoking gun" for which I was searching to prove to them they shouldn't/can't do this -- can you point me to anything (online) in writing that I can show to them?
Thanks, everyone! I'm new to this site, but already finding it very helpful! | |
| 17 February 2009 | |
| Only corporations are permitted to operate with real estate licenses in California. See here http://www.dre.ca.gov/pdf_docs/forms/re218.pdf.
Your client's situation is atypical because he currently operates under the broker and it'd be debatable whether he was actually operating under this proposed LLC. Regardless, it's unlikely he'd want to open this can of worms with the California DRE, since it's possible he'd be subject to censure for operating under an impermissible entity. He might also be subject to censure (I'm assuming here), since his partner in this purported LLC does not hold a California real estate license. Finally, from an asset protection standpoint, this would be a bad strategy. It's still unclear whether they are actually legally married. I assume they became married during the period before the passing of Prop. 8, but those marriages have never been tested in any court so placing their cumulative assets (which may still be separate) into a single entity may subject otherwise separate assets of one spouse to the creditor of the other spouse. In this case, I'd make the creditor do the hard work and prove that they are married and thus their community property is subject to collection, rather than place it all into one pot without any gray area. | |
| 17 February 2009 | |
| that would be great precedent to show that all such marriages are legal. some couple might surely sacrifice some assets for the greater cause. | |
| 17 February 2009 | |
| I know those people are out there, but most of my clients have found more satisfaction in saving money and stress instead of becoming famous legal precedent. | |
