Corporate Tax Planning
IRS Code has 3 forms of business: 1) Sole Proprietorship (pass through entity): the business is a mere continuation of the individual. There is no creation of a new legal entity. You use 1044 to file your private money with business income. Code Sec 61 (definition of income) states there is only one level of taxation. 2) Corporation (C or S): create a distinct legal entity. 3) Partnership (pass through entity): create a distinct legal entity. Corporate law states partnerships must be registered with the state. Tax law says the partnership is a reporting entity, but not a taxable entity because there is no taxation at the level of the partnership. The profits are taxed at the end of the partners’ fiscal year. The report file sent to the IRS is to ensure the IRS knows how much income each partner will file with the IRS. It just tells the IRS how the income generated from the partnership was distributed to each partner. Types of Partnerships
General: all partners are general partners and have unlimited liabilities. It does not matter if one of the partners did not commit the business transaction, tort, or malpractice. Ex: acquires loan and the loan and cannot the paid back. The creditor has the right to go after any or all the partners. As a partner, one must make sure who is taking out loans for the GP and if it can be repaid because anyone is liable for the loan. However, one partner can go after the other partner for reimbursement. The creditor can go after the GP in any way to collect. If one has 50 and other has 30 and you need 70, the creditor can attack the GP in any way to collect all its money.
Limited: it is composed of at least one general partner and one limited partner. The limited partners cannot participate in the management and their liability is limited to their investments into the partnership.