Re: Sec. 1706 of the Tax Code

I was clarifying generalized things for the poster who mentioned LLC as a
suggestion from his accountant.

Was that poster you?? Then you're welcome. Was it someone else?? Then
correct my errors or kindly stick to your original grievance.

- Vara
- www.facebook.com/vara.lafey
On Dec 8, 2016 4:39 PM, "David Schwartz" <newsletters@thetoolwiz.com> wrote:

> I’m not sure what the point of these “Rah Rah for LLC!” posts is all
> about. Nobody has said anything to the contrary.
>
> This list is primarily for people who work in the "high tech" (i.e.,
> computing) industry, which is SPECIFICALLY what Sec. 1706 of the Tax Code
> deals with.
>
> If you’re in Real Estate, Accounting, Architecture, or whatever, 1706 does
> not apply to you. It’s very, VERY NARROW in its applicability — BY DESIGN.
>
> Sec. 1706 eliminates the “safe harbor” provisions for people who work as
> contractors, eliminating any “benefit of the doubt” that is historically
> given in most other professions, and instead subjects workers and the
> companies that employ them to a vague 22-point (IIRC) series of questions
> that an IRS Auditor can use to establish whether someone should be (or
> should have been) regarded as a “contractor” or “employee” for tax purposes.
>
> The problem is, this is not something that is adjudicated when you hire
> on, and it does not matter how many reams of paperwork you sign that says
> it’s one thing or the other.
>
> It’s a ticking time-bomb that applies in the vast majority of cases 3-5
> years AFTER THE FACT when the person — usually hired as a contract worker
> at the time — is audited by the IRS for whatever reason, and the auditor
> reviews one of his employment situations and subjects it to the 22-point
> “test”. If he rules the person was acting as a “contractor”, all is fine.
>
> But if he rules the person should have been treated as an “employee”, both
> the person and the erstwhile “employer” just got nuked.
>
> The back-due taxes assessed to the “employer", plus accrued penalties and
> interest, typically amount to far more than whatever the person was paid.
> The company has no knowledge anything went awry until they suddenly get a
> bill from the IRS.
>
> Meanwhile, the person in question now has to “unwind” any business
> expenses and deductions, as well as anything that depended on them such as
> retirement contributions, FICA/FUTA/UI set-asides, etc. Everything is
> up-ended and needs to be re-filed.
>
> And to add insult to injury, the same auditor is likely to flag previous
> and subsequent years for auditing as well, and what do you think he’s going
> to rule on other contract gigs that were fundamentally the same situations
> as the first one he nuked?
>
> Again, if you’re not in the high-tech industry, this does not apply to
> you.
>
> Having a single-member LLC stand-in to protect you against such situations
> can be helpful, IF the company you want to work with is willing to hire
> you. Many are not because of problems discussed in other threads.
>
> -David "The Tool Wiz" Schwartz
>
>
>
> On Dec 8, 2016, at 4:53 PM, Vara La Fey <varalafey@gmail.com> wrote:
>
> Yes, you can be the only user ("Manager" and "Member") of an LLC. I did it
> for years in real estate, and still have my LLC.
>
> IIRC the form takes more like 5 min. You publish your intended LLC in the
> Record Reporter for 6 weeks. I forget the cost, but it's fairly cheap and
> easy. And IIRC, the Sec of State office (or wherever I went) has a form for
> that too.
>
> LLCs are almost zero maintenance and are not sublect to hostile takeover.
> And so easy that some real estate investors create one for each property,
> just to keep properties legally isolated from each other for basic
> liability reasons. An LLC name like "<street address>, LLC" is one of
> those. (So named cause the investor realized that pretty names would be
> silly and confusing.)
>
> Good luck!! :-)
>
> - Vara
> - www.facebook.com/vara.lafey
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