[miguel.maldonado.37]

Mary and Richert plan to establish a retail business that will have outlets in six cities in a
southeastern state. Since the business probably will generate losses in at least the first three
years, they want to use an entity that will pass the losses through to them for both Federal and
state income tax purposes. They have narrowed their choices to an S corporation and a limited
liability company. Advise Mary and Richert on selecting an entity form.

[aaronmo]

Sheesh…they're both pass through entities. An llc can elect s Corp treatment in most states and they can be taxed the same way…it's sort of a BS question without knowing the specific llc laws in that state, and the differences are advanced enough where it sholdnt be a CPA question…

Honestly – I don't think this is a legit question.

[gigabyte2001]

A multi member llc will default to taxation as a partnership absent the valid elections to be taxed as a corp & small corp elections. There's some restrictions on being an S Corp (ie; number & type of shareholders) while there are other restrictions on p'ships ie: self employment taxes are due on company profits in most cases. That's the 10 second off the top of my head. My company actually converted recently from default taxation as p'ship to s-corp specifically bc of the self employment tax issue. IRS wants there to be 1 general partner even in an LLC. There's a lack of clear guidance on the issue and we had 1 tax attorney say it's due, another and 2 tax cpa's say it's not. Actually an interesting discussion if you like tax.

B - 11/11/16
A - 4/16/16 87!!
R - 2/17/17
F - 7/26/16 - Waiting for 8/23

[aaronmo]

Gigabyte – agree…but the differences are so complicated and theoretical, with so many variables, that it's not a CPA exam MCQ; it's a senior thesis.

[aaronmo]

I'll bet they meant to say c-Corp and wete trying to ask about dividends vs. pass through treatment.

[Author]

Replies