Talking California Tax.

• Author: Williams, Leonard W.
• Position: Dissolving a corporation; limited liability companies and inheritance and divorce tax questions - Brief Article

The Debate Goes On

Finding Help for Terminating a California Corporation

The alternatives of formally dissolving or simply walking away from a California corporation have generated considerable discussion on the TaxTalk listserve.

A group of CPAs and attorneys, who meet (offline) bimonthly to discuss tax subjects, agreed that it is impossible to generate a general rule. The attorneys didn't have a slam-dunk general answer and often just let corporations die.

However, more formal help is available. Spidell Publishing has an excellent book, "Spidell's Guide to Dissolving California Corporations," that discusses when to just walk away and let it die. It costs about $35 and ordering information can be obtained at www.caltax.com.

Also, the course manual from Professor Kitty Wright's California CPA Education Foundation course on "Corporate Liquidations and Dissolutions," is available for purchase online at www.educationfoundation.org. Click on Products and search by key word for corporate liquidation.

Which is Better--An LLC, Partnership or Corporation?

In the June 2001 issue of California CPA, I reported on an earlier discussion of which is better--an LLC, partnership or corporation. The debate has continued.

The biggest drawback to an LLC is the fee that must be paid to the state of California, in addition to the $800 LLC tax. The fee is a function of the total annual income, pursuant to a table in General Instruction G in the instructions for FTB Form 568. The fee doesn't Kick in until total annual income reaches $250,000. In 2000, it was 1,042 with a maximum fee of $9,377. For 2001, the maximum fee is slated to crop to $8,814.

The fee is deductible for California income tax purposes.

One venerated CalCPA member says: "If have not been able to find any compelling reason to choose LLCs except that the lawyer already had set it up."

While a couple of members mentioned several distinct advantages, assuming that the client is willing to pay California's fee based on total annual income. Those advantages included:

* The three aspects of ownership (voting, capital and profits) do not have to be proportional to an individual's ownership interest as they do with a corporation.

* LLCs eliminate C corporation issues such as unreasonable compensation, accumulated earnings and disguised dividends. While an S corporation has many of the same benefits, an S corp does not have the flexibility of a partnership in post year-end allocations. An S corp also has...