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<p>You’re assessment is not quite accurate.</p>
<p>What 1706 does is make the risk of hiring independent contractors unreaonably high, so they prefer to offset that risk onto 3rd-parties.</p>
<p>I’ve been with firms that refuse to hire contractors who are LLCs like you describe as well, because they’re really no better from a risk standpoint than hiring sole proprietors, and in some ways they’re even worse. (A company can win a lawsuit and judgment against an LLC, and end up getting a “charging order” for the LLC that puts them at risk for paying current-year taxes on their ostensible “income” earned by the LLC while the LLC owner(s) can literally take years to distribute anything to them.)</p>
<p>I think a far better solution would be to for a group of people to get together and become shareholders and employees in a normal C Corp (“employee-owned and operated”!), then use that entity to contract with clients. One benefit of this is that it could set up typical Group benefits plans for insurance and retirement needs.</p>
<p>This is what many enterprising foreigners have done as a means of funneling folks from their home towns over here to America under the H-1B visa program. They end up taking the lion’s share of the fees charged and only pay their employees a pittance. But the employees are getting quite a bargain in the process, namely permanent employment for 7-10 years, and ultimately a green card.</p>
<p>The motivations and resulting dynamics for a bunch of US Citizens to do this aren’t nearly as well-defined, and the people involved would be far more likely to act like a herd of cats with their own interests and demands.</p>
<p>Which is probably why we see very few such entities compared with those owned by foreigners.</p>
<p>-David “The Tool Wiz” Schwartz</p>
<blockquote><p>On Dec 8, 2016, at 10:01 AM, Keith Smith <techlists@phpcoderusa.com> wrote:</p>
<p>David, you have brought up Sec. 1706 of the Tax Code several times over the years. I am not familiar, however from what you describe it sounds like it prohibits a programmer from becoming a sole proprietor, however it sounds like it does not stop agencies from doing contract work.</p>
<p>What is an agency?</p>
<p>I'll read Sec. 1706 of the Tax Code when I get done with my current project and have more time.</p>
<p>Sounds like the solution is to form an Limited Liability Company (LLC). My accountant says it is legitimate to form an LLC and be a one man band and to have only one client. He say that is a legit business.</p>
<p>Forming an LLC in AZ is simple. Fill out the forms the state provides pay your fee with the filing and publish. I think it costs about $85 and takes 3 or 4 hours (for a beginner) over about 6 weeks.</p>
<p>Anyone have any thoughts?</p>
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