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T. S. Givens

T. Givens’s Answers

2 total

  • Does Michigan have seperate gift tax law that they use besides federal law?

    is the amount of gift tax Michigan charges same as federal gift tax? If so, is it $14000 per year and 5.34m life time exemption (allowed to give for any reason without having to pay gift tax)? Please someone (lawyer) from Michigan answer my qu...

    T.’s Answer

    The gift tax to which you appear to be referring is the U.S. Federal gift tax. While individual states can enact state gift tax laws, only two states, Minnesota and Connecticut, currently do so. A number of other states have enacted gift tax laws and then subsequently repealed them. If the gifts you are contemplating, or have made, have any connection with either of these states, you should seriously consider at least consulting a tax attorney or CPA licensed to practice in that state.

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  • I need to know how to set up an LLC so that my foreign business partner will be on the LLC and bank account with me.

    I already made an llc in michgan but there was not a place to add more members. Did I do something wrong?Fill out wrong document?

    T.’s Answer

    The comments of the other contributors regarding your need for an Operating Agreement are all well taken. It also appears that you correctly filed your LLC Articles of Organization with the State of Michigan. I am more concerned, however, that you may not be aware of the very substantial banking and taxation issues you will be facing because one of the two members of your Michigan LLC is apparently neither a U.S. citizen nor a U.S. resident. If this is true, your business partner will be and deemed to be a "non-resident" alien.

    Generally speaking, there is no law against a non-resident alien being a member of your LLC. The simple fact that such a person has a financial interest in your American LLC usually means that the IRS will automatically consider them "to be engaged" in trade or business in the United States. This, in turn, subjects the foreign member to U.S. taxation and requires that member to file Form W-7 to obtain an individual tax ID number.

    This leads to all kinds of tax-related duties and obligations for your LLC-- and you as its only U.S. member! One of the largest of these LLC obligations is Mandatory Quarterly Withholding as to each foreign member. Every quarter, the LLC has to: (a) calculate its income for that quarter, (b) allocate the foreign member's share of that income, and (c) pay withholding up to 30% of the annual taxes due to the U.S. Treasury. The LLC is required to make the withholding payment even if it made no distributions to the foreign member and irrespective of its cash flow that quarter. Further LLC foreign member withholding obligations include filing various forms including Forms 8804, 8805 and 8813.

    While circumstances vary in each individual situation, the LLC may also be responsible for filing further disclosure statement forms and processing further withholdings in order to comply with the U.S. Foreign Investment Real Property Act. The LLC often has to determine whether it has participated in certain other "tax sheltered" transactions and then file a Form 8886 Disclosure regarding such transactions. In a worst-case scenario the rules set out in Treasury Regulations 1.6012-3 might require you to file an income tax return on behalf of your foreign partner and even pay the tax that is due with that return!

    In addition, because your partner is foreign, the LLC--and you personally-- cannot avoid making quarterly self-employment tax payments by electing to be treated as a subchapter-S corporation. In some cases, the tax law of your foreign partner's home country may disregard the LLC entity and impose corporation tax rates on all or part of your client's LLC income, etc. If your foreign partner lives in one of the countries that has a tax treaty with the United States, you will probably need to take that treaty into account in calculating the amount of the non-resident alien quarterly withholding payments discussed above.

    Finally, due to recently enacted U.S. anti-terrorism and anti-money laundering laws, you should anticipate encountering a significant amount of extra paperwork and scrutiny when you attempt to open as bank account.
    None of the problems outlined above are impossible to overcome. You should, however, very definitely meet with a qualified CPA or attorney to discuss the structure of your new business before going much further.

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