Sec. 1706 of the Tax Code

Sun Dec 11 19:53:55 MST 2016

Sorry, I really fail to see your point in all of this. You’re actually supporting my claims even though you’re twisting my words.

I’ve worked in the high-tech world my entire career, and it’s the one I know the most about. So if you’re trying to extrapolate what I’m saying to other fields, you’re on your own.

As I stated, and you pointed out, Sec 1706 eliminated the “safe harbor provision” for *EMPLOYERS* IN THE HIGH-TECH INDUSTRY — which is established by SIC codes that apply to the EMPLOYER. The companies you cited are excluded. So why make examples of them when they don’t apply?

It’s nice that you thought to support exactly what I stated in that it does NOT APPLY OUTSIDE of the HIGH-TECH industry, which is a topic about which I’m not qualified to speak.

And I *NEVER* said that single-member business entites are bad or illegal or anything of the sort. Nice of you to twist my words several times, tho. 

I merely stated that, for reasons that most people do not grasp, there are places (in the HIGH-TECH WORLD) that will not do business with single-member LLCs.

I’ve run into SEVERAL! So don’t tell me I’m full of crap. When they refused to explain why, I asked my CPA and HE explained it to me.

Look up “charging orders” for LLCs and how they put creditors at risk of paying income taxes to the LLC from earnings that taxes are due on but have yet to be distributed to members.

This is real. It applies to every LLC, and it causes trouble for lots and lots every year, but most acutely to single-member LLCs because … well, I’m not going to explain it again. You obviously don’t care.

I’m told this is why people in the real estate industry love LLCs — because you can win a lawsuit and never collect a dime without them ever filing BK. Instead, you can get stuck on the hook for your share of quarterly income taxes due by the LLC (as a creditor), based on the size of judgment you got relative to their assets and cashflow. It’s one reason why they typically put one asset into every LLC — they can simply abandon the LLC with the charging order by selling the asset for pennies to another LLC.

Nobody in their right mind gets a charging order against LLCs if they win a lawsuit and judgment, unless it’s a large, multimember / multimanager LLC that has virtually no chance of halting distributions indefinitely in order to avoid paying against the charging order.

Single-member LLCs for people employed in the HIGH-TECH INDUSTRY represent extremely high risks in that scenario. Great for the LLC owner/member, VERY BAD for the HIGH-TECH employer. Regular Corporations (both C and S Corps) are not subject to this problem.

-David "The Tool Wiz" Schwartz

> On Dec 9, 2016, at 11:40 AM, Keith Smith <techlists at phpcoderusa.com> wrote:
> 
> 
> It was me.  My current accountant says a one person LLC doing business with a one company is a legit business.
> 
> 
> 
> On 2016-12-08 16:48, Vara La Fey wrote:
>> 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 [3]
>> On Dec 8, 2016 4:39 PM, "David Schwartz" <newsletters at 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 at 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 [1]
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> -- 
> Keith Smith
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