Choosing the form of business for professionals

Article Abstract:

There are three desirable formats that professional or personal service corporations (PSCs) can adopt. The first is a partnership in which the PSCs are the partners. Such a structure allows greater flexibility in the distribution of income among partners and tax-free admittance of new partners, and reduces the possibility of inadvertent termination. In addition, a partnership allows the sale of interest by a partner to result in stepped-up basis to other partners if there is a Sec. 754 election. The second form that PSCs can take is a limited liability company (LLCs), in which the PSCs act as members. This enables PSCs to attain partnership tax status and simultaneously avoid problems related to general partnerships, including unlimited liability and mutual agency. The last form that can be taken is the S corporation, which is owned by the professionals as individuals and offers the same advantages provided by LLCs.

All Other Professional, Scientific, and Technical Services, Professional Services NEC, Management, Professional services, Professional corporations

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Many safe harbors in publicly traded partnership regs

Article Abstract:

Final Regulations define important terms and concepts in ascertaining if a partnership should be taxed as a corporation. These regulations offer a highly particularized set of guidelines for finding out if a partnership is publicly traded for purposes of Sec. 7704. This section holds that a domestic or foreign publicly traded partnership is taxable as a corporation, except for particular existing partnerships or those satisfying a 90%-qualifying income test. The Regulations provide five broad safe harbors in publicly traded partnerships. These include private transfers, redemption and repurchase agreements, qualified matching service, private placements, and lack of actual trading. The first three operate on a transactional level.

Taxation

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Limited liability company vs. S corporation

Article Abstract:

Tax advisers are often asked to recommend if a new business should operate as a partnership or an S corporation. Limited liability companies (LLC), which are assumed to be taxed as partnerships, seem to be the best form of business because it offer flexibility in the capitalization of its operations. This financing flexibility involves the number and type of potential financiers, and the nature of the capital invested. Moreover, the LLC structure usually involves fewer tax obstacles than the S corporation form in exiting the business. The more flexible provisions of Subchapter K will also provide members with different other tax advantages. However, recent legislation make it possible for an S corporation to retain its vitality.

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