Your Limited Liability Corporation Maybe in Jeopardy

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If your limited liability corporation is owned by just you, then you may want to ensure that you filed it appropriately.     The limited liability corporation that you formed is still a good options, but as a single owner the way it was filed may cause a challenge if it was not designated at the time you filed.  Let’s examine.   There was a case that challenged the single owner LLC; the case was Littriello vs.  United States.

The primary reason that a business entity is form is to protect the owners, managers, and/or members from personal liability.  However, the business entity must be structured correctly to accomplish that goal.  Mr. Littriello did not classify his company.  For tax purposes, he needed to check a box to declare his company as an association or corporation.   As a results of Mr. Littriello not checking the appropriate box the IRS treated his company as a sole proprietorship for federal tax purposes.  This reclassification resulted in Mr. Littriello being held personal responsible for the employment taxes for the company he formed.

This is not the end of Mr. Littriello’s dilemma.  Mr. Littriello did not operate the company he had a general manager that did the daily operation of the company.  This general manager embezzled money from the company in 2000 and 2001 that created the dilemma that Mr. Littriello faced with the IRS over the employment taxes. 

The actions of Mr. Littriello’s general manager led to the court proceedings true enough, but the fact that Mr. Littriello did not classify his company as a corporation led to him being held personal responsible for the payment of the employment taxes.     Make sure that you check the appropriate box on the LLC documentation, so that you will not be held personal responsible.    The designation of the LLC is very important if you are a single member and/or manager of the LLC.  Consult an attorney or accountant to make sure that your single owned LLC is set up properly.

History of Limited Liability Corporation

Wyoming was the first state that created the LLC.  The LLC that Wyoming created had the corporation characteristics, but not the corporation tax structure.  Remember, a corporation’s disadvantage is double taxation.  The creation of the LLC solved that problem.

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