Corporate Tax and S-Corp Status Language in the LLC Operating Agreement

Either a Single Member LLC or Multi-Member LLC may choose corporate taxation and elect Sub - S status. I raise the tax issue immediately in the Pre-Organization Questionnaire Letter and state the decision is for the clients’ tax specialist.

If an LLC elects Sub-S status, I include prominent warnings in the LLC Operating Agreement against future action that would jeopardize Sub-S status. The warnings are in the sections concerning the type of action that could jeopardize Sub-S status. I also reiterate the danger of losing Sub-S status in the Attorney Letter on doing business as an LLC.

Equally important when organizing a Multi-Member LLC taxed as a corporation is not to include the extensive LLC partnership tax language. When I organized “Form” LLCs I did not have a multi-member LLC Operating Agreement without partnership tax language.

Included as part of the Fees and Costs, I prepare IRS Form 8832 and the SC Initial Report of Corporation (CL-1) for LLCs choosing corporate tax, as well as, the IRS Form 2553 for those then electing Sub-S status.

"Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose the pattern which will best the Treasury; there is not even a patriotic duty to increase one’s taxes." Judge Learned Hand, Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934).