The reason clients ask these questions is because they hope to minimize paperwork (tax filings) and enjoy the perceived "flow-through" or "pass-through" tax benefits of those other entities.

Some of the most frequently asked questions we get from clients are:
• "Why do I have to establish a C Corporation to implement the BORSA™?"
• Why can’t I establish an S Corporation, LLC (limited liability company), LP (limited partnership), or GP (general partnership) to implement the BORSA™?"
• Won’t I pay double tax with a C Corporation?
The reason clients ask these questions is because they hope to minimize paperwork (tax filings) and enjoy the perceived "flow-through" or "pass-through" tax benefits of those other entities. As you will see below, that is not always the case.
Here’s why any entity other than a C Corporation won’t work for the BORSA™.
Consider the essence of the BORSA™ structure: a C Corporation adopts a 401(k) plan and the 401(k) participant chooses to self-direct his account to buy stock in the C Corporation. Thus, a 401(k) plan (for the benefit of its participant) becomes a shareholder of the C Corporation. Now consider this:
In order to function as a flow-through entity, an S Corporation must be owned by an individual(s) or by a qualified Subchapter S Trust. A 401(k) plan cannot be a shareholder in an S Corporation. http://www.irs.gov/pub/irs-pdf/i2553.pdf
LLC’s, LP’s, and GP’s are all capital-account based entities – there are no shareholders, and there is no stock to issue to the BORSA™’s 401(k) plan. Under section 408(e) of ERISA, the only "qualifying employer securities" that can be owned by a qualified plan like a 401(k) are:
• Stock
• Marketable obligations
• Interest in publicly traded partnerships
Membership interests in an LLC and partnership interests in a non- publicly traded LP or GP do not meet the definitions of "qualifying employer securities".

Regarding the paperwork concern:
• C Corporations file tax Form 1120 annually with the IRS.
• S Corporations file tax Form 1120S annually with the IRS.
• LLC’s, LP’s, and GP’s all file tax Form 1065 annually with the IRS.
Although S Corp’s, LLC’s, LP’s, and GP’s do not pay income tax at the entity level – rather, they "pass through" their income gains or losses to their individual shareholders, members, or partners – they still have to file annual tax returns that delineate the "pass- through" amounts. There is no escape from the IRS’ paperwork requirements regardless of the entity selected.
Lastly, the concern over "double taxation" in a C Corporation:
You often hear the statement that C Corporation earnings are subject to "double taxation". This may or may not be true if you own the C Corporation’s stock individually, depending on your circumstances and proper tax planning. It is definitely not true when the corporation is predominately owned by a tax exempt retirement plan like the BORSA™ plan.
The concerns about "double taxation" of profits stems from a C Corporation earning profits which are taxed at the corporate level,
Corporate Income Tax Rates: 2008
Taxable income over Not over Tax rate

Page 1 of 2 :: First | Last :: Prev | 1 2 | Next