Today TaxMama® hears from Shar in the TaxQuips Forum, with this observation.  “If you start an LLC and elect to have it be taxed as a C-Corp, does this election require you to follow all the ongoing requirements of your state for maintaining a C-Corp (corporate minutes, complete set of books, etc.)? Or can you continue following the much easier requirements for maintaining and running an LLC? If so, this setup might be the best of both worlds – getting all the benefits of C Corp, such as all the fringe benefits for the owner; while, at the same time, taking advantage of the relative ease of running an LLC.”

Ask TaxMama

Dear Shar,

Yes, that’s an excellent point. And the very reason many people select the LLC entity before electing to file their tax returns as C Corps.

However, over the years I have found that if you do not keep minutes and maintain good records about corporate/LLC decisions, you’re at a disadvantage in an audit.

As to not keeping books? That’s one of the more irresponsible concepts of all!

However, even when you don’t maintain all the corporate niceties, you are protected from having the veil of the ‘corporation’ pierced in an audit, since it’s not a corporation.

And remember, you can find answers to all kinds of questions about LLCs and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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Comments2
  1. TaxMamaNovember 17, 2012   

    Hear! Hear!

    Excellent advice, Ken.

    Incidentally, I love that part about Disney World.
    A journalist just wrote to me from there, thanking me for the idea of mixing business and family vacations. They were having a magical time at Harry Potter’s world.

    Hugs
    Eva

  2. Ken HoffmanNovember 16, 2012   

    Following corporate formalities should become a part of doing business for both corporation and LLC owners. Merely forming a corporation or an LLC does not guarantee limited liability protection for the founders.

    For example there is a recent case here in FL where a judge “pierced the veil” because the LLC members did not follow even the basics.

    In XL VISION, LLC. v. Holloway, 856 So. 2d 1063 – Fla: Dist. Court of Appeals, 5th Dist. 2003 the court opined:

    “The corporate veil may be pierced if the plaintiff can prove “both that the corporation is a `mere instrumentality’ or alter ego of the defendant, and that the defendant engaged in `improper conduct’ in the formation or use of the corporation.” Bellairs v. Mohrmann, 716 So.2d 320, 323 (Fla. 2d DCA 1998) (emphasis supplied)(citing Dania Jai-Alai Palace, Inc. v. Sykes, 450 So.2d 1114, 1120-21 (Fla.1984)).”

    IMHO if you are going to run a business, do it properly. That is what I tell my clients. Besides writing off the members meeting at Disney World is a nice perk.

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