New Foreign Owned Single Member LLC Reporting Requirements

  • December 21, 2016

The IRS and Treasury department issued a new ruling on December 12, 2016, which is intended to create more financial transparency and reduce criminal activity (remember the “Panama Papers”?).  The new regulations will create a mechanism whereby U.S. tax information will come to the attention of a foreign investor’s home country. This directly impacts reporting requirements for foreign owned single member LLCs.

New Foreign Owned Single Member LLC Reporting RequirementsFor tax years beginning after January 1, 2017, domestic disregarded entities (e.g. single member LLCs) will be required to report and maintain records pursuant to Internal Revenue Code 6038A which previously only applied to 25% foreign owned domestic corporations.

Single member foreign owned entities will now be required to obtain a U.S. employer identification number (EIN) and to designate a “responsible party” (who is, in essence, the person that enables the “individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets”). The ruling also requires the filing of IRS Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, which reports certain transactions with related parties, including amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity, including contributions to and distributions from the entity.

The final ruling can be found in its entirety here.

7 Tips to Ready Your Business for 2017

  • November 23, 2016

Hard to believe that another new year is just around the corner.  Whether you are thinking about end of year organization or New
7 tips to ready your business for 2017Year’s business resolutions, here are  seven tips for readying your business for 2017:

  • Charitable Giving: Business or personal, charitable giving is not only a tax deductible event it is always better to give than to receive. There are many local non-profits that could especially use your help this time of year. Consider funding a Thanksgiving meal for a family, donating a warm coat or even volunteering some hours.
  • Estate Planning: When is the last time you updated your estate plan? Do you need to accomplish any year end gifting? It is advisable to review you estate plan at least every 5 years and depending on your circumstances more often.
  • Tax Planning: This is the time to call your CPA and discuss any over or under payments for 2016, year-end purchases and retirement account contributions.
  • Business Registrations: Have you renewed all required registrations, licenses and filed all required tax returns?  Business registration renewals of all types should be calendared. If Incline Law Group, LLP serves as your registered agent, we will track your annual business registration and state business license renewal for you.
  • Insurance: As long as the Affordable Care Act (“Obamacare”) remains in place, there is an open enrollment period which runs November 1, 2016 through February 1, 2017. Your employee health insurance plan is now likely to have a year-end renewal date regardless of when you used to renew. Now is the time to renew or shop for new policies.
  • Leases: Commercial leases often run for longer periods of time and new leases or renewals can often take some time to complete. If your lease is expiring in 2017, now is the time to start planning for that.
  • Employment Policies: January 1 is a great time to put new policies in place for employees in place, especially ones that address newer issues like medical marijuana in the work place and privacy issues. You do want to be sure that your employment practices and policies are compliant with state and federal employment law.  Please be sure to consult with your attorney before putting new employment policies in place.
This article was originally published in the Sierra Sun/Tahoe Bonanza in Incline Law Group’s monthly opinion column, Legal Clarity.

Defending Fraud Cases with Particularity (Specificity)

  • October 11, 2016

Defending fraud cases – enforcing the requirement of pleading fraud with particularity (specificity).

We often observe that claims in business and real estate disputes include allegations of fraud. Fraud allegations can be both upsetting and costly to resolve.  Fraud claims often assert unethical or criminal conduct, knowingly perpetrated by person accused.  Fraud claims might also be phrased as a negligent misrepresentation, which is just slightly less inflammatory.

Defending fraud claims requires some special strategies. At the most basic level, if requested, courts will require detailed allegations of fraud in comparison to other kinds of claims.  Thus, while it might be sufficient to generally allege that a defendant failed to exercise due care and thus was negligent in operating a vehicle leading to a car accident, courts will typically require considerable factual detail in fraud allegations, including the date, time and place of the fraudulent communication and what exactly was fraudulent or dishonest.  We believe it is most effective to start pursuing this detailed information early in the case.

In our experience, in both business and real estate cases, the alleged
real-estate-listings-fraudfraudulent actions of various parties are often lumped together collectively and are not specifically pleaded. In a fraud case, being lumped together with others’ wrongful conduct is both upsetting and complicates each individual’s defense.  Using procedural rules that require specificity in fraud allegations, we have found that courts are receptive to granting pre-answer motions seeking more detailed fraud allegations so that our clients can identify exactly what is attributed to them as opposed to all of the defendants collectively.

If you have been sued for fraud in a business or real estate transaction, the best time to start seeking specificity is through a pre-answer motion to dismiss or a motion for a more definite statement.  By doing so, there is a good chance the court will require the plaintiff to plead their fraud allegations against you and any other defendants with great specificity (and individualized per each defendant), which will provide better clarity and efficiency in defending your position as the case unfolds.  Incline Law Group LLP has had recent successes in various cases pursuing this strategy to the ultimate benefit of our clients.

Why Operating Agreements are Critical

Why Operating Agreements are Critical

  • March 31, 2016

While Operating Agreements may not be required in many states, most, if not all, authorize the use of Operating Agreements for limited liability companies (LLCs).

Why are Operating Agreements so critical? Because they help to define the rights, obligations and relationships between all those involved in the LLC. As I often tell clients – every partnership is a great one…until it’s not. And when it stops being great, or the parties want to go in different directions, having an agreement that can guide a resolution or decision making authority is key.

Members, managers and the company can generally agree to operate the LLC in any manner they want so long as it is in compliance with applicable law. While Operating Agreements can cover a myriad of issues there are generally five areas that most members and managers will turn to for guidance, and therefore are areas that are worthy of careful consideration when entering into an Operating Agreement.

1. Manager Authority: This section will set forth what decisions the manager of the LLC can make without member input. This might be all day to day decisions, but not major decisions or some variation of that.

2. Member Decisions: The extent to which the members have a vote on certain LLC business can be minimal or broad. Often members will want to retain the right to vote on new managers, the ability of the LLC to borrower money, dissolution of the LLC or amendments to the Operating Agreement.

3. Duties: Most states provide a statutory framework for certain duties that managers may owe to the company and/or members. These usually include certain fiduciary duties and duties of care. These duties can often be expanded or narrowed by agreement of the parties in an Operating Agreement.

4. Allocations and Distributions: Operating Agreements can specify how the company will allocate and distribute profits and losses to the members. Members have the flexibility to create preferred returns, allocations of profit and loss that are different that ownership interests and many other structures for the allocation and distribution of profits.

5. Transfer of Membership Interests: How, when and if members can sell their interest or otherwise withdraw from the LLC is very important. The Operating Agreement can provide for very restrictive transfer and withdrawal rights or very liberal transfer rights. It is important that members understand any limitations on their ability to sell their interest or otherwise withdraw from the LLC.

Operating Agreements can cover many issues. The five noted above are some of the key issues that we find are often important to clients. The flexibility of the LLC structure and Operating Agreement provisions are what make LLCs a very attractive entity structure for many people. Incline Law Group, LLP can assist you with preparing an Operating Agreement as well as the formation of an LLC in Nevada or California.

Do you hire employees or independent contractors? The answer is probably both.

  • February 1, 2016

Do you hire an employees or independent contractors?

Employers routinely consider a number of factors in whether to hire an employee or an independent contractor as their business grows. It is important for businesses to be able to explain why the “independent contractor” the company just hired is actually an “employee” under the law or vice versa. SB 224, recently passed by the Nevada legislature and signed by Governor Sandoval went into effect on June 2, 2015. This law provides much more clear guidance on what qualifies for “independent contractor” status and what doesn’t. SB 224 creates a conclusive presumption that an individual is an independent contractor for Nevada wage and hour claims if certain conditions are met.

This is yet another list of “factors” that business owners and their respective counsel must become familiar. Of potentially greater importance will be determining which law will apply and when. There is a different test in determining the employment classification of a person in each of the follow circumstances: (1) wage and hour claims under Nevada law; (2) wage and hour claims under federal law; (3) workers compensation claims; (4) and unemployment claims. It is entirely possible that under the wage and hour law in Nevada an individual could be considered an independent contractor, but if terminated, the individual could file for unemployment and be classified as an employee.

While some of the factors in each test overlap, using all the factors in each test will, in many cases, result in different classifications for the same individual.  It is now more important than ever to consult your legal counsel to protect your business so that you can properly structure job descriptions for your employees and/or independent contractors to benefit your business as well as plan for the changes in classification that may occur in the event of injury (worker’s compensation claims) or termination (unemployment claims).

If you need more information or have any questions regarding how the new law may affect your business, do not hesitate to contact Incline Law Group, LLP for some clarity on the subject.