An attorney on a "friend basis" asked me to help him out w/a plan to circumvent a - according to him - "racist law" that had been passed in TN. The idea is that to go around the law a staffing firm would keep the # of employees under 50 and this would by-pass this particular law. His idea is he would need to start some 25 companies all under the control of his company that will handle all the bookkeeping, payroll, taxes, etc. - basically everything (All would be LLCs). In his pitch he said "It's not about making money, but about helping people". He fronted all funds - some $20K to start the business along with liability ins and worker's comp. My job essentially is to sign stuff and collect the mail, and in exchange he said "once it gets going your business might make about $500/mt". For me $500 extra a mt can help a lot so I said yes. To date all is ready - BUT he had me sign a form stating all contracts for co. are verbal in nature & so far there are no written agreements about anything! He said his $ he put in will be a loan. Another biz he started he said took 3 months to pay back $14K! - but HOW if he says I MIGHT make $500/mt? What's MY tax liability for all the EXTRA $?
The attorney's overall plan may not work.
it appears as if all of the LLCs are under common control with the sole intent to avoid a rule based upon number of employees.
The IRS has had success in treating these types of transactions as one firm. See Marc's Big Boy-Prospect, Inc. 452 F2d 137, (CA-7) affirming 110 TC 1073. If this is done, the perceived benefit will be eliminated.
I would be very cautious working with you attorney friend.
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