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Tax Professional Answers
Brett Thompson, JD, CPA
Experienced Professional Tax Council should be engaged when using any of the of the following planning details.
A Series LLC statute has been enacted in 8 or more states and it is likely that other states will follow, much like the LLC statutes proliferated. Clients are concerned as to the record keeping that needs to be done in order for the liability protection ensued created “cell” as have termed the segregated assets under the “Host” or legal entity.
Accounting separating cell activity is a must. The most common is using an Excel Sheet where each cell can be a “column” and data is listed under that column heading. This could be easy to do, especially in oil and gas taxation where each well has to be separated from the other wells to compute percentage and cost depletion. That is, the entity is already using a separate accounting.
Rental Real Estate could also be accommodated easily as it is likely the accounting is done by property already.
It could also be the case that the cells are taxed differently by the IRS depending on the manner in which the cell is formed. Thus, one cell may file a partnership return while another file as an S Corporation.
Another approach is for each cell to have its own set of double entry bookkeeping for that cell only. This could be very easy or very complicated depending more likely on the demands of the banks if the banks require a separate EIN for each cell. At a minimum, the accountant should be able to use intercompany receivables and payables which are always in agreement with the balances. It is good practice that when transferring funds from one cell to another, the funds first go to the host, and then the host transfers to the cell. Otherwise the IRS, may contend that the debt to another cell does not constitute basis and therefor losses from the cell can’t be passed up to the Host.
QuickBooks also provides accounting by “class” which could be used to separate cash receipts and disbursements by each “class.” Separating balance sheet items could be a problem.
The statutes do not address this issue except to state “… (1) the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular series shall be enforceable against the assets of that series only, and shall not be enforceable against the assets of the limited liability company generally or any other series; and… applies only if: the records maintained for that particular series account for the assets associated with that series separately from the other assets of the company or any other series; Texas Business Organizations Code Sec. 101.602.
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309 weeks ago
A Series LLC statute has been enacted in 8 or more states and it is likely that other states will follow, much like the LLC statutes proliferated. Clients are concerned as to the record keeping that needs to be done in order for the liability protection ensued created “cell” as have termed the segregated assets under the “Host” or legal entity.
Accounting separating cell activity is a must. The most common is using an Excel Sheet where each cell can be a “column” and data is listed under that column heading. This could be easy to do, especially in oil and gas taxation where each well has to be separated from the other wells to compute percentage and cost depletion. That is, the entity is already using a separate accounting.
Rental Real Estate could also be accommodated easily as it is likely the accounting is done by property already.
It could also be the case that the cells are taxed differently by the IRS depending on the manner in which the cell is formed. Thus, one cell may file a partnership return while another file as an S Corporation.
Another approach is for each cell to have its own set of double entry bookkeeping for that cell only. This could be very easy or very complicated depending more likely on the demands of the banks if the banks require a separate EIN for each cell. At a minimum, the accountant should be able to use intercompany receivables and payables which are always in agreement with the balances. It is good practice that when transferring funds from one cell to another, the funds first go to the host, and then the host transfers to the cell. Otherwise the IRS, may contend that the debt to another cell does not constitute basis and therefor losses from the cell can’t be passed up to the Host.
QuickBooks also provides accounting by “class” which could be used to separate cash receipts and disbursements by each “class.” Separating balance sheet items could be a problem.
The statutes do not address this issue except to state “… (1) the debts, liabilities, obligations, and expenses incurred, contracted for, or otherwise existing with respect to a particular series shall be enforceable against the assets of that series only, and shall not be enforceable against the assets of the limited liability company generally or any other series; and… applies only if: the records maintained for that particular series account for the assets associated with that series separately from the other assets of the company or any other series; Texas Business Organizations Code Sec. 101.602.