LLC-Single Purpose

[djack1040]

Client wants to serve as the "General Contractor" to build his own personal residence.

His attorney has suggested forming a single member LLC to try and build a legal shield from potential "sub-contractor liability" issues; most notably workers compensation claims and other potential non-performance type claims.

Once the house was finished, the LLC would sell the house to the taxpayer at "no profit".

Since most of us are not lawyers, I am not asking for "any legal opinions". Notwithstanding, I would like your accounting/tax opinions on Whether a LLC could capture all of the construction costs in a "construction in progress" inventory/capital cost account over two or more separate tax years; file a Sch C with no income/expense during constuction; and upon completion, show the sale offset by accumulated costs with no gain.

Again, the purpose of the LLC is not a tax gimmick, but looks to me like a bold legal gamble with a lot of liability potential.

Your thoughts?

[jainen]

He's a fool

He's a fool. The only way you shield yourself from workers comp claims is with workers comp insurance. Remember that the biggest advantage of insurance is the skilled defense lawyers it provides. If someone is hurt--I mean WHEN someone is hurt, because a naive setup like his is an open invitation to claims--he will be financially destroyed in a matter of days, and the state might even file civil or criminal charges.

But even fools have to pay their taxes. Since he is not operating a business, there is no Schedule C, all expenses of the LLC are personal, and the only tax effect is the annual registration fees he owes.

[cpadan]

Yeah, and he won't be able to deduct the attorney's fee's either. Forget the LLC, what he really needs is a shark suit.
Dan

[S T]

LLC and S Corps

I don't know what State you are in or your taxpayer, but I find it amazing at how many people want to achieve the status of being able to claim that they own a company as a LLC or S Corp. Over the years, I believe it has become a huge status symbol.

Most of these people do not understand the costs involved of setting up the Company (legal and filing fees) the ongoing State annual fees (State Revenue Dept and Secretary of State) and other legal risks, like Jainen pointed out, plus any of our fees either as accountant or tax preparer.

In this last week alone, I have read postings on a couple of boards, about some far fetched idea of either forming an LLC or incorporating, which seem to have little to no merit. That is not counting the other couple of phone calls that I receive from my clients inquiring.

It really is no wonder that IRS will be targeting audits on both LLC's and as well in particular S Corps.

Sandy

[Bees Knees]

A single member LLC that has not elected corporation status is treated as a “disregarded” entity for federal tax purposes. That means for income and expense reporting purposes on the federal return, you treat your cash flow as if there was no separate entity.

So all you need to do from a tax point of view (which is what your question is about – not the legal side of the issue), is ignore the LLC and ask yourself how you would treat these financial transactions if the guy was just building his house and acting as his own general contractor.

No tax return issues are involved, since none of the costs of building your own house are tax deductible, other than the stuff you throw on Schedule A.

[OldJack]

lawyer is smart?

Not being a lawyer, I really don't see how much protection the LLC would provide this individual home builder. However, any would be better than none! As Bees points out there is no tax effect and there would be no need to file any tax return as there is no taxable gross income or transactions. Cost of an LLC in my state is $100 to set one up, with the Secy of State, and no further costs or paperwork down the road except tax prep cost.

So... in Missouri (my state) this may be a good idea for the home builder. Whats a hundred dollars now days? Chung Change.

[BOB W]

Worker's Compensation

I have a client that has WC for spot building and he was audited by WC. NYS WC could care less about any subs and did the audit without including the subs. Check with your state's WC carrier.

As to all expenses, they are carried on the books as inventory until sold. NO operating income or expenses.