A little known Court Case has just sent ripples through the business community. If you, or someone you know, has one of the 1.2 million Limited Liability Companies in the US today, you’ll want to read this alert.
In the case of Littriello v. United States, a Kentucky man formed an LLC (Limited Liability Company) for his nursing home. He did not use the “check the box” tax decision and instead decided to just run it under the “default” tax schedule.
TaxLoopholes Tip: *If he’d been my client, this would have been the first thing I would have changed. We recommend businesses to run either in an S Corporation, C Corporation or LLC electing one of those strategies. That’s because you will pay less in taxes PLUS have a much lower chance of IRS audit.
Mr. Littriello was not involved in the operation at all and instead relied on his hired staff. During this time, a trusted employee embezzled from the company and failed to pay payroll taxes for the staff. The IRS came after the company for the unpaid payroll taxes. Mr. Littriello thought that he personally was not liable, because, after all, he had an LLC through which he operated the business.
“Not so!” said the IRS. They maintained that because he had used the disregarded entity selection he actually operated like a Sole Proprietorship. I have to say, I didn’t think there was a chance that the IRS was going to win that argument. But they did.
Now that the court has upheld that a disregarded LLC (for tax purposes) is actually not really even an entity, it makes me wonder how safe the LLC will be in other situations. Or, rather, how safe it is if you operate a business and fail to make the proper tax election.
Morale of the story: Get with your CPA right away! We would love to help you with that if you’re looking for a CPA who understands the ins and outs of business. Contact us through www.DKAffiliated.com, through email at CPA@TaxLoopholes.com or give Richard a call at 602.258.0700, extension 5.