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    Joshua and Laura Meier Newport Beach Trust and Estate Planning Attorneys Focused on Helping Families with Young Kids
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    Nov 13 12

    If It Walks Like a Partnership in Newport Beach and Quacks Like a Partnership in Newport Beach…

    Newport Beach Law Firm

    you have an arrangement that might be viewed as a partnership, the safer course
    is probably to get a partnership agreement drafted or more likely form an LLC
    and have an operating agreement drafted.

    DuckThere are quite a few ways of
    structuring a business entity. But how do you choose between the veritable
    alphabet soup of LLCs, S Corps, C Corps, LPs, LLPs, and so on and so forth?
    This can be quite a headache, since not all of them do the same thing.

    A golden rule for business is to
    do business the way your business is structured, and to structure your business
    entity in the way you need to be doing business! If you mix and match, it has
    an unfortunate tendency to create serious liabilities which often come with a
    fairly aggressive tax assessment.

    With liabilities and taxes in
    mind, consider reading a recent Forbes
    article titled “Beware Of Partnership Status Sneaking Up On
    Your Business Venture

    While this advice is nothing
    new, yet another tax court case has come down the pike to confirm this
    conventional wisdom. In the case a father and son operated a moderately large
    agricultural business. The father and son, however, each formed their own
    entities, worked together to do the work, split the income equally, but
    disproportionately split the expenses. The IRS determined that this juggling of
    the books didn’t compute, so the IRS slammed both father and son with the taxes
    that would have applied on a single “partnership.”

    You could say this was another
    case of “substance over form.”

    Teaching point: if there are two
    business entities, then they must act like two businesses in order to be separate businesses. Otherwise, there
    should be only one entity, if such is an accurate reflection of how the work is
    being done.

    Of course, the accidental partnership
    is not the only pitfall. Be sure to read the original article for the full

    Contact your Newport Beach
    estate planning attorneys at Meier Law Firm to discuss all of your estate
    planning needs

    Reference: Forbes
    (October 21, 2012) “Beware Of Partnership Status Sneaking Up On
    Your Business Venture

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