Should You Organize Your LLC in California or Delaware? Part 1- Voting Rights

By Daniel M. Cousineau

We are often asked whether a new limited liability company (“LLC”) that will be active in California should be organized in California or Delaware. In the next several posts we will explore different topics relating to this threshold question, since an LLC operating in California may have its internal affairs governed by Delaware law if it is organized and properly maintained under Delaware law. And while the answer depends on the facts of each case, there are important common factors that all parties involved in this decision making process must carefully consider.

One of the most important factors in picking between California and Delaware are the default voting rights given to members in California that cannot be waived or altered by agreement. These fundamental voting rights shift a certain amount of power and control away from the managers, who are often the founders or initial investors, and towards the other members. Continue reading “Is the West Coast the Best Coast?”

By Daniel Cousineau

On October 31, 2018, the Treasury Department issued proposed regulations that fundamentally change the way that U.S. corporate borrowers can use controlled foreign corporations (“foreign subsidiaries”) to obtain better credit terms.

Under the old rules under Section 956, a U.S. corporation could obtain very little credit support from its’ foreign subsidiaries. This is because a guarantee or pledge of assets by a foreign subsidiary on U.S. corporate debt was viewed as an investment in U.S. real property by that foreign subsidiary, giving rise to a “deemed dividend” that was taxable in the U.S. under the old “Subpart F” income regime. Case law and IRS rulings have made it clear that this “deemed dividend” is not actually a dividend under the tax rules and, therefore, is not eligible for the preferred rate of tax on qualified dividends, among other matters. Continue reading “Proposed Regulations Provide Greater Flexibility in Obtaining Credit Support from Foreign Subsidiaries”

By Jeffrey Davine

A taxpayer with a “seriously delinquent tax debt” may be in for a surprise if he or she has overseas travel plans.  This is because the IRS has begun implementing its authority to instruct the State Department to pull delinquent taxpayers’ passports.

In 2015, Congress passed the Fixing America’s Surface Transportation Act, (“FAST”).  In this context, FAST should be renamed “STOP” because it added Section 7345 to the Internal Revenue Code, which authorizes the IRS to disclose certain tax information to the State Department concerning taxpayers who owe the IRS more than $50,000.  Armed with this information, the State Department may revoke, deny, or place limitations on, the delinquent taxpayer’s passport.  Continue reading “Delinquent Taxpayers May Need to Rethink Travel Plans”

By Daniel M. Cousineau

Internal Revenue Code section 199A attracted immediate attention when it was enacted last December, since it created a new tax benefit.

Section 199A allows individuals to deduct up to 20% of the “qualified business income” from certain types of businesses operated in “pass-through” form. Partnerships, limited liability companies, S corporations and sole proprietorships meet this definition because there is no corporate level tax and the earnings from the business pass through to the owners for tax purposes.

While the intent of Section 199A was to generally put business owners operating in pass-through form on the same footing as businesses who received a reduced 21% federal corporate tax rate, the complexity of the rules left many questions in need of clarification.

On August 8, 2018, the Treasury Department issued proposed regulations addressing some of these questions. One such clarification is the extent to which a buyer of a pass-through entity can avail themselves of the 20% deduction. Continue reading “Section 199A: Deal Considerations When Buying or Selling a Partnership or LLC Interest”