What are the Tax Consequences of Dissolving my Business?

Depends on whether you are operating as a sole proprietorship or a partnership or a corporation.  If you are operating as a limited liability company, it depends on whether you have elected for tax purposes to be taxed as a disregarded entity, partnership or corporation.  More on that in the next blog.

If your business is being operated as a sole proprietorship, the sale of the assets upon liquidation may trigger recognition of gain, loss and depreciation recapture.  Any such recognized gain, loss or depreciation recapture will be reported for federal income tax purposes on your personal income tax return.  You will pay tax at the rate of 15% on any long term capital gain. Short term capital gain will be taxed at the ordinary individual income tax rate.

If your business is being operated as a partnership or an "S" corporation, any gain, loss and depreciation recapture recognized on the sale of the business assets will be reported on the partnership or "S" corporation information return and allocated among the owners on Schedule K-1.  Each owner then reports and pays tax on such owners pro rata share of the allocated gain, loss or depreciation recapture.  The owners will pay tax at the rate of 15% on any long term capital gain.  Short term capital gain will be taxed at the ordinary individual income tax rate.  The distribution of the sale proceeds by the partnership or "S" corporation to the owners reduces the owners' capital account, but is generally not subject to tax so long as the owners have sufficient capital account.  More about capital accounts in a future blog.

If your business is being operated as a "C" corporation, any gain, loss or depreciation recapture recognize don the sale of its assets will be reported on the "C" corporation income tax return, and the corporation will pay tax on any gain or depreciation recapture at the corporate income tax rate (generally 34%).  There is no corporate capital gains rate.   Upon distribution of the sales proceeds to the owners of the corporation, the owners will report the distribution as a dividend and pay tax at the rate of 15%.  This is on top of the tax the "C" corporation paid upon sale of the assets.

The double tax aspects that result from liquidation of a "C" corporation is the main reason owners of businesses do NOT let their "C" corporation acquire appreciating assets.  Instead real estate and other appreciating assets should be acquired by an affiliated partnership, LLC or "S" corporation. 

If you are thinking about dissolving your business, or are thinking about how to best structure your business to avoid problems down the road, please give me a call or email.  Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  Under the federal income tax code, “S” corporations are not permitted to be owned by corporate shareholders.  So “S” corporations cannot be part of a parent-subsidiary consolidated group of corporations.  One way around this limitation is to use qualified “S” subsidiaries commonly referred to as “QSSS”.  More about how and why to use QSSS in a future blog.  Call or email me if you have a question about QSSS and can’t wait.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & EbelingLPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

Happy Holiday!

Merry Christmas and Happy New Years!

In the next blog we'll talk about tax consequences of dissolving a corporation or LLC and what it means to make a QSSS election.  Talk to you soon.  Call or email me if you have a question about dissolution or QSSS that can’t wait.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

How Do I Close Down My Corporation?

In Ohio and most states, a corporation is dissolved by filing a Certificate of Dissolution with the Secretary of State’s office.  After the Certificate of Dissolution is filed, the corporation will continue to exist so long as necessary for the corporation to wrap up its affairs.  If the corporation has shareholders or assets or has been doing business, the Certificate of Dissolution must be approved by the shareholders or the Board of Directors.  If the corporation has never had shareholders or assets and has never done business, the Certificate of dissolution may be signed by the Incorporator.  In addition to the Certificate of Dissolution, an Affidavit must also be submitted to the Secretary of State stating that various state agencies have been sent Notice of the dissolution and stating where in Ohio the corporation has assets.  This Affidavit must be signed by an Officer of the corporation or the person submitting the Certificate. It is also necessary to file a Form 966 with the Internal Revenue Service to report the dissolution of the corporation.  The Form 966 must be filed within 30 days after the corporate action is taken approving the dissolution.  There are penalties for late filing. Dissolution in and of itself does result in transfer of the assets of the corporation.  Upon dissolution and during the wrapping-up process, assets are sold, creditors are paid, reserves may be established and any balance is distributed to shareholders.  The corporation generally reserves the rights to its name for a year after the dissolution.   Dissolving a corporation will likely have tax consequences for the corporation and/or the shareholders.  These will be discussed in more detail in a future blog.  Please call or email if you want to know more how to dissolve a corporation.  Jsenney@pselaw.com or 937-223-1130.  AND ONE MORE THING.  Under the federal income tax code, “S” corporations are not permitted to be owned by corporate shareholders.  So “S” corporations cannot be part of a parent-subsidiary consolidated group of corporations.  One way around this limitation is to use qualified “S” subsidiaries commonly referred to as “QSSS”.  More about how and why to use QSSS in a future blog.  Call or email me if you have a question about QSSS and can’t wait.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

What is a Series LLC?

A series LLC is a special form of limited liability company intended to provide liability protection for a "series" of different activities.  In theory, the assets of each “cell” in the series should be protected from liabilities of the other cells.  In overall structure, the series LLC is comparable to a parent corporation with multiple subsidiaries.

For asset protection reasons, business owners commonly form a parent company and then put each business operation into a separate subsidiary.  This works well as a liability shield.  But having multiple subsidiaries involves additional costs to set-up, administer and maintain the parent company and the multiple subsidiaries.  A series LLC avoids these additional costs and is an alternative to consider. 

Each cell of a series LLC has its own assets and liabilities, and may have different managers and members (owners).  A series LLC pays one filing fee.  The rights and obligations of the managers and members of each cell in the series LLC is set forth in the series LLC operating agreement.

To minimize the risk that courts will find one cell in a series liable for debts of another cell in the series, owners of a series LLC should do the following: (1) register and use a separate “doing business as” name for each cell; (2) set-up a separate bank account for each cell; (3) sign legal documents (deeds, lease agreements, bills of sale, contracts, etc.) for each cell using its own distinct dba name; (4) conduct all transactions between cells at arms-length and document such transactions; (5) adequately capitalize each cell; (6) avoid having multiple cells be co-owners of assets; (7) avoid having cells lend or borrow money regularly and repeatedly from other cells; and (8)  prepare (or be able to prepare) separate financial statements for each cell showing the assets, liabilities, income and expenses of such cell. 

The federal income tax entity classification system will apply separately to each cell in a series LLC.  So if cell A has one member, that cell would be treated as a disregarded entity unless the member elected to treat the cell as a corporation for federal income tax purposes.  Likewise, if cell B had two or more members, that cell would be treated as a partnership unless the members elected to treat the cell as a corporation.  Most states have indicated that they will follow the federal income tax entity classification system for income tax purposes.

Using a series LLC rather than a parent-subsidiary organization may present some state tax savings opportunities.  For example, under some state statutes, sales tax specifically applies when one subsidiary sells or rents equipment to another subsidiary.  Using a series LLC in which one cell rents equipment to another cell may work to avoid this sales tax. 

Series LLCs are available in Delaware, Illinois, Iowa, Nevada, Oklahoma, Tennessee, Texas, Utah and Wisconsin.  Ohio Has not yet enacted legislation to permit series LLCs to be created in Ohio.  The series LLC is not yet embraced as a liability protection technique because some of the federal and state tax treatment of series LLCs has not been fully resolved. 

If you would like to know about series LLC nad how they might benefit your business, give me a call or email.  Jsenney@pselaw.com or 937-223-1130

AND ONE MORE THING.  Bad new is that some successful businesses have had their loans called or lines of credit shrunk or eliminated.  Good news is that there are still some area banks that are making loans and extending lines of credit.  Give me a call or email and I can tell you who you want to talk to.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

Is There an Offer-in-Compromise Program for State Taxes?

Many states including Ohio have an Offer-in-Compromise program similar to the program offered by the IRS.  The Ohio Offer-in-Compromise program is handled through the Attorney General’s Office.  Like the federal program, the taxpayer may submit an offer based on doubt as to liability or doubt as to collectability.  However, unlike the federal program, the taxpayer will be required to make full financial disclosure of the taxpayer’s assets and income whether the offer is based on doubt as to collectability or doubt as to liability.   The Offer amount if accepted may be paid in a lump sum or over a period of time.  While the offer is pending, all collection activity generally ceases.  If you or someone you know is having trouble paying state taxes or workers compensation,   we may be able to submit an Offer-in-Compromise and reduce or eliminate the taxes.  Give me a call or email if you want to know more about how you can make an Offer-in-Compromise to reduce or eliminate state taxes.  Jsenney@pselaw.com or 937-223-1130.  AND ONE MORE THING.  Some long time successful businesses have had their bank loans called or lines of credit shrunk or eliminated in the last couple of years.  And despite the bank bailout and the modest recovery the economy has made, some banks are still turning off lines of credit for credit-worthy businesses.  If you are in this situation, give me a call.  There are some banks out there that are still making loans and extending lines of credit.  Give me a call or email and I can tell you who you want to talk to.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

What if I Just Can’t Afford to Pay My Taxes?

If you owe the IRS more taxes, interest and penalty than you can pay, or if you don’t think you owe the amount the IRS says you owe, you may be able to get the IRS to accept an Offer-in Compromise.  An Offer-in-Compromise can be made based on doubt as to liability or based on doubt as to collectability.  If the Offer is being made based on doubt as to liability, the taxpayer explains to the IRS why the taxpayer does not owe the amount the IRS has assessed.  Even though the taxpayer may have no appeal rights left, the IRS will review the matter under the Offer-in-Compromise program and will waive or reduce the tax if the IRS agrees with the taxpayer’s position.  If the Offer is being made based on doubt as to collectability, the taxpayer will need to submit detailed information concerning the taxpayer’s assets, liabilities, income and expenses.  The IRS will use this information to determine whether or not to accept the taxpayer’s offer.  In order for an Offer to be accepted, the amount offered must represent all of the net equity in the taxpayer’s assets, plus an amount calculated by multiplying the taxpayer’s monthly  disposable income (income minus allowed expenses) by a factor of 48 or 60 (depending on length of repayment period).  The Offer amount may be paid in a lump sum or over a period of time. The Offer-in-Compromise generally takes 3 months to complete.  While the offer is pending, the IRS typically puts collection activity on hold.  The State of Ohio and other states have a similar (but different) offer process.  If you or a friend are having trouble paying federal income taxes, submitting an Offer-in-Compromise may be the way to go.  At best, the IRS waives or reduces the amount of tax, penalty and interest you owe.  At worst the IRS ceases collection activities for the period of time they spend evaluating your offer.  Give me a call or email if you want to know more about the Offer-in-Compromise process.  Jsenney@pselaw.com or 937-223-1130.  AND ONE MORE THING.  Even if you don’t qualify to make an Offer-in-Compromise based on doubt as to collectability because you have too much net equity in asset or to much disposable income, you can often still get the IRS to accept an installment payment arrangement.    Call or email me if you want to talk about setting up an installment arrangement with the IRS.  Jsenney@pselaw.com or 937-223-1130. Serving Dayton, Serving You Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423 www.pselaw.com Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Bankruptcy, Creditors Rights, Immigration Law, Litigation, Arbitration, Mediation

Holiday Gift for SenneySays Readers/Followers

We've got some neat headbands with the PS&E / SenneySays logo to keep your ears warm this winter. We will be sending one to everyone who registers as a Reader/Follower of SenneySays.  If you are already registered as a SenneySays Reader, send me an email with your address and we will get your headband delivered.  If you are not already registered as a Senneysays Reader, register today.  Jsenney@pselaw.com or 937-223-1130.  

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Serving Dayton, Serving You
Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Am I Out of Luck if I Don’t File an Appeal Timely?

If the IRS issues an assessment of tax, and you do not appeal to the US Tax Court within 90 days, the tax assessment becomes final and cannot be appealed to the US Tax Court.  However, there are still ways to get the matter reviewed and the tax assessment adjusted. 

One way to get the matter re-opened is to pay the tax and then file for a refund.  If and when the IRS rejects the request for a refund, you will have an opportunity to explain why the assessment is erroneous and you do not owe the tax.  Paying the tax can be burdensome.  But if you have no other appeal rights, doing so gives you a chance to correct an erroneous assessment.   One important note: if the tax assessment relates to payroll taxes or income tax withholding, you only need to pay the tax related to one employee for one tax period in order to seek refund and review of all the tax erroneously assessed.

Another way to get the matter re-opened is to file an Offer-in-Compromise based on doubt as to liability.  When you file the Offer-in-Compromise you have an opportunity to explain to the IRS why you don’t owe the tax.  If the IRS agrees, they will waive the tax assessed.  If the IRS does not agree, the tax assessment stands.  The Offer-in-Compromise program is a voluntary program the IRS offers, and there are no appeal rights from rejection of an Offer-in-Compromise.  But it is a relatively simple and inexpensive way to get a second chance to correct an erroneous tax assessment, and I have had good success with this program.

If you have received a proposed or final tax assessment, call your tax professional.  And always feel free to call or email me to discuss any questions you have about your taxes.    Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  InvestOhio is an incentive program implemented by Ohio as part of the new budget that became effective on July 1, 2011. It provides a non-refundable 10% personal income tax credit against Ohio income tax to investors that infuse new equity (cash) into Ohio small businesses. In order to qualify, the business must have assets less than $50 million or annual sales that do not exceed $10 million, and the business must employ at least 50 full-time equivalent employees in Ohio or more than 50% of the business' full time employees must work in Ohio. The business must invest the cash contributed in one of five categories of allowable expenses.  The registration process opened November 14, 2011.  The application process  will start Monday December 5, 2011.  The tax credits are awarded on a first come – first served basis, so time is of the essence. For more information go to the Ohio Department of Development website or give me a call or email at Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation