Advantages of the Single-Member LLC and the Disregarded Entity Rules

The limited liability company (LLC) is a relatively modern invention that has grown rapidly in popularity and for good reason. Generally, an LLC is a business entity that is legally distinct and separate from its owners, or rather its members.  As a result, the LLC provides its members with significant protection from liability to third parties, like a traditional corporation provides to its shareholders.

However, the LLC has some advantages over the corporation, including :

• An LLC is generally subject to less administrative requirements than a corporation.
• An LLC may elect to be taxed as a partnership, corporation, or s-corporation.
• An LLC that is wholly owned by a single member may be treated as a “disregarded entity” for federal income tax purposes.

What are the benefits of a disregarded entity?

• A disregarded entity will not need to file a separate income tax return because its income or loss will pass-through to its sole member.
• A single-member LLC that is not taxed as a corporation, has no employees, and is not subject to excise taxes does not even need to apply for a separate Employer Identification Number (EIN).[1] Instead, such a disregarded entity may use the taxpayer identification number of its sole member. However, if another party, such as a bank, insists that the disregarded entity provide its own EIN, then the disregarded entity may obtain one for convenience.

Continue reading »

Missouri Joined the Rest of the Country in Enacting “Wayfair Tax”

Missouri joined the rest of the country in enacting a sales tax on online purchases, commonly known as a “Wayfair tax,” when Governor Parsons signed Senate Bill 153 into law. The governor identified the Wayfair tax as a priority in his 2021 State of the State Address. The Wayfair tax will begin in Missouri on January 1, 2023.

Previously, Missouri businesses who made online sales to Missouri customers were required to charge sales and use tax, while companies without a physical presence in Missouri who made online sales to Missouri customers were not.  The new law allows Missouri to impose a sales tax on online purchases made through vendors such as Etsy, eBay, and Wayfair, that are delivered to the state.

The Wayfair tax is intended to even out the playing field for local businesses to compete with online companies. It is also expected to raise up to $41 million for public schools, $5 million for the Missouri Department of Conservation, and $4.5 million for state parks and soil conservation. Continue reading »

2021 Missouri Real Estate Taxes – And Appeals

The COVID-19 pandemic has caused an extreme financial hardship on most, if not all, Missouri families. As such, many owners of real estate are investigating how best to reduce their outstanding financial obligations and save resources wherever possible.

Given this crisis, one obvious area to investigate is real estate tax liability. Missouri reassesses all real estate every odd-numbered year (e.g., 2019, 2021, etc.). In even-numbered years, local Missouri assessors normally allow values to remain unchanged from the prior odd-numbered year. 2021 is a reassessment year for all Missouri local assessors.

Real Estate Assessment

Real estate assessment is the process of local county assessors placing a fair market valuation and classification on all real estate. Missouri properties are divided into three classifications: commercial, residential, and agricultural. If the assessed valuation changes during the reassessment, the assessor sends out a Notice of Assessment to the taxpayer.

Appeal of Real Estate Valuation

Valuations are typically available in late spring to early summer. If you disagree with the county assessor’s valuation, you can appeal the property tax.  Appeals must be filed on or before the second Monday of July. In 2021, all appeals must be filed on or before Monday, July 12, 2021.

To file an appeal, obtain the proper real estate tax appeal forms (generally found on the local Board of Equalization (BOE) website). File the forms and submit evidence to support your opinion of the fair market value on your property to the local BOE.

Assessed Valuation

Once the fair market value of the property has been determined, the assessor must apply the appropriate percentage to the fair market value. In Missouri, commercial property is assessed at 32% of the fair market value as January 1 of the reassessment year. Residential property is assessed at 19% of the fair market value. Finally, agricultural property is assessed at 12% of the fair market value.

Real Estate Taxes 

The tax on real property is determined by the assessed valuation of the property multiplied by the actual tax rate set by the local government where the property is located.  Tax bills are generally mailed out annually in late fall with payment due on or before December 31. If real estate taxes are not paid when due, the taxes become a lien on the property with interest and penalties possibly added after January 1 of the following year.

Real Estate Tax Appeals: The Local BOE and Beyond Continue reading »

Guidance Released on Deferring Employee Social Security Taxes

The IRS released guidance for employers regarding President Trump’s August 8, 2020 memorandum on withholding, deposit, and payment of employee Social Security taxes for the period of September 1, 2020 through December 31, 2020. Secretary of the Treasury Steven Mnuchin has since confirmed the deferral as voluntary and that employers may choose to continue to withhold and deposit employee Social Security taxes under the normal schedule.

The guidance clarifies that employees eligible for deferral are those with wages (for FICA purposes) of less than $4,000 per bi-weekly pay period or an equivalent amount for other pay periods. The deferral of eligibility determination must be made on a payroll-by-payroll basis. Any compensation not considered wages for FICA purposes does not count when making the determination of eligibility. It is also important to remember that ‘wages’ considered are not based on gross pay but are based on the amount of wages after nontaxable deductions. Continue reading »

President Trump Signs Paycheck Protection Program Flexibility Act

The Paycheck Protection Program Flexibility Act (Flexibility Act) makes key changes to the Paycheck Protection Program (PPP) that provide borrowers with more flexibility to obtain loan forgiveness, including extending the time period to spend PPP loan proceeds, reducing the payroll expenditure requirement for PPP loans, and extending the time period to restore employment and wage levels. The following is a summary of the modifications the Flexibility Act makes to the PPP.

1. Extension of Time to Spend Loan Proceeds. The Flexibility Act extends the covered period that a borrower must spend its loan funds from eight weeks after the loan origination date to 24 weeks or until December 31, 2020, whichever is earlier. The Flexibility Act allows borrowers that already received a PPP loan prior to enactment of the Flexibility Act to elect an eight week covered period, which may be beneficial for borrowers who have already spent most of their PPP loan proceeds and are near the end of their original eight week covered period.

2. Payroll Expenditure Requirement. The Flexibility Act reduces the payroll expenditure requirement from 75% to 60%. The remaining 40% of loan funds may still only be used for payments of interest on any covered mortgage obligation, rent and utilities.

In an Interim Final Rule issued on April 3, the SBA established the requirement that at least 75% of the PPP loan proceeds be used for payroll costs. If less than 75% of the of loan funds are spent on payroll costs, the SBA Loan Forgiveness Application requires a borrower to reduce the amount eligible for loan forgiveness. In changing the payroll expenditure requirement to 60%, the Flexibility Act added the following language to the CARES Act: “To receive loan forgiveness”, a borrower “shall use at least 60% of the covered loan amount for payroll costs.” Based on this language it is not clear whether a borrower will still be able to obtain partial loan forgiveness if the 60% threshold is not obtained. Continue reading »

PPP Loan Forgiveness Application Now Available

Updated 7/6/2020

The Small Business Administration (SBA) and the Department of Treasury have released the Paycheck Protection Program (PPP) Loan Forgiveness Application.

The application deadline for the Paycheck Protection Program has been extended to August 8, 2020. Updated loan forgiveness instructions and forms are available here:

PPP Loan Forgiveness Application Instructions for Borrowers

PPP Loan Forgiveness Application Form – Revised June 16, 2020

Self-Employed: Continue reading »

Safe Harbor Deadline for Repayment of PPP Loans Extended from May 14 to May 18

On May 13, 2020, the Small Business Administration (SBA), in consultation with the Department of the Treasury, extended the safe harbor deadline to repay Paycheck Protection Program (PPP) loans to May 18, 2020. Previously in its PPP Loans Frequently Asked Questions (FAQs), the SBA reminded borrowers to carefully review the required certification on the PPP loan application that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

In further guidance, the SBA provided that any borrower of a PPP loan that repays the loan in full by the specified safe harbor deadline will be deemed by the SBA to have made the required certification concerning the necessity of the loan request in good faith.  According to the newly issued FAQ #47, Continue reading »

Additional SBA Guidance Regarding PPP Loan Business Necessity Certification and New Safe Harbor for PPP Loans of Less than $2 Million

The Small Business Administration (SBA), in consultation with the Department of Treasury,  announced additional guidance regarding the required good faith certification borrowers must make concerning the necessity of the Paycheck Protection Program (PPP) loan request. In PPP loan applications, borrowers must certify in good faith that current economic uncertainty makes the loan request necessary to support their ongoing operations.

In an update to its PPP Loan Frequently Asked Questions (FAQs) on May 13, the SBA provides a new safe harbor for any borrower that, together with its affiliates, received a PPP loan of an original principal amount of less than $2 million. These borrowers will be deemed to have made the required certification concerning the necessity of the loan request in good faith.

As previously announced by the SBA, borrowers with PPP loans in the amount of $2 million or more, and other designated PPP loans, are subject to review by the SBA for compliance with the requirements of the PPP Interim Final Rules and the Borrower Application. According to Question 46 of the updated FAQs, Continue reading »

Safe Harbor Deadline for Ineligible Borrowers to Return Paycheck Protection Program Loans is Extended to May 14

UPDATED 5/6/2020

The Small Business Administration (SBA), in consultation with the U.S. Treasury,  published retroactive guidance regarding the loan necessity certification a borrower must make on its application for a Paycheck Protection Program (“PPP”) loan.

In its update to the list of Frequently Asked Questions (FAQs) about PPP loans issued on April 23, the SBA explained that prior to making an application for a PPP loan “all borrowers should carefully review the required certification that ‘[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.’” In making this good faith certification, the Treasury stated that all borrowers must take “into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operation in a manner that is not significantly detrimental to the business.”

Although the SBA guidance specifically questions loans made to public companies with substantial market value and access to capital markets, the guidance applies to both public and private companies.

The generality of the SBA guidance left many borrowers confused. There were news articles published about small businesses that were concerned about expending PPP loan funds despite perceived operational needs.  In a likely response to this confusion, the SBA updated its FAQs about PPP loans on May 5, indicating that it was going to provide additional guidance regarding how it would review the business certainty certification.  Additionally, the FAQ update provides that a borrower will be deemed to have made the business necessity certification in good faith if the borrower applied for the PPP loan prior to the issuance of the FAQ and repays the loan in full by May 14, 2020. The original safe harbor repayment deadline way May 7. Continue reading »

Non-deductibility of Expenses Paid with Forgiven Paycheck Protection Program Loans

According to new guidance issued by the IRS in Notice 2020-32, no deduction is allowed for otherwise deductible expenses if they are paid with PPP loan funds that are forgiven and the income associated with the forgiveness is excluded from the taxpayer’s income. The basis for the IRS’ disallowance of the tax deduction for such expenses is Internal Revenue Code (IRC) Section 265(a).

IRC Section 265(a) provides that a deduction is not allowed for any amount otherwise deductible that is allocated to one more classes of income which are wholly exempt from income taxes. The IRS ruled that the CARES Act’s exclusion from income of forgiven PPP loan amounts results in a “class of exempt income” under Section 1.265-1(b)(1) of the Treasury Regulation. Therefore, the payment of such expenses is non-deductible from income because such payment is allocable to tax exempt income. Continue reading »