LLC Members want to be employees

[RitaB]

OK, like I need to spend a bunch of time proving something right now. LLC members are just dying to be on payroll. The LLC files Form 1065. (Hey, the lawyer set it up, not me.) I have told them the members are paid guaranteed payments. They are not employees. I researched this two years ago for them, and thought we were all square with it.

Head guy sends me an e-mail saying lawyer that set them up says they can be paid wages. I almost feel like showing them the door. The head guy originally wanted his kids (over 18) and the other workers to be members so he could avoid workers comp. Now he wants them all to be on payroll.

Sure, I could do it. Probably nothing would come of it. But it is not correct, and I really don't care to do things incorrectly. I feel like the head guy went over my head to the lawyer. I am really irritated. If he insists on putting members on payroll, what would you say to him? I'm thinking, "Been nice working for you."

Maybe I'll just shut up and go to bed. Boy, I am so grouchy.

[jainen]

>>they can be paid wages<<

Of course they can. I mean, what, will the IRS and the other agencies refuse to cash the payroll tax checks? It's bad form, and that might compromise the liability shield they wanted, but LLC is a flakey setup anyway and can probably benefit from the formal structure of a regular payroll. I suppose if they act too much like a corporation the IRS could recharacterize them AS a corporation, but just document your advice and warnings, and then continue the engagement.

[elfling]

RCooper,

I'd lean more your way. Show them the door.

It's not worth compromising what you know is correct to please this "head guy" or anyone else. Is their lawyer going to support you if the proverbial sh** hits the fan? There is no way to forecast what could result with a change like that. In PA the changes would be crazy - state mandated worker's comp, both employee and employer unemployment comp payments, local services/systems taxes, possible reclassification to a corp with franchise and corp stock taxes, etc. TN may not have to deal with all that but, still, treating partners as employees just isn't proper.

If they believe a lawyer knows more about accounting than the accountant, then let the lawyer handle the tax return, payroll, and every other part of their business.

More than my 2¢.

Elfling

[RitaB]

>>they can be paid wages<<

Of course they can. I mean, what, will the IRS and the other agencies refuse to cash the payroll tax checks? It's bad form, and that might compromise the liability shield they wanted, but LLC is a flakey setup anyway and can probably benefit from the formal structure of a regular payroll. I suppose if they act too much like a corporation the IRS could recharacterize them AS a corporation, but just document your advice and warnings, and then continue the engagement.

Who are you, and what have you done with jainen?

OK, it would be a lot easier on me if all these whiny babies were on payroll. It is quite clear that they can't save the money to pay their taxes. The liability shield has already not only been pierced, but sliced and diced, I'm pretty sure, because of their half-@$$ way of doing everything.

But I digress... So, if there is a problem later, you don't think the lawyer will point the finger at me in a heartbeat?

Did I mention I was grouchy?

[Gail in Virginia]

Not to mention how much fun is to have everything that you tell them questioned and argued with, even when you have done the appropriate research. I think we all get grouchy this time of year, and much more willing to tell clients that if they know so much about how it should be done to leave us alone and do it themselves!

[dexterman]

On another note ask the lawyer what LLC stands for? I'll bet they say Limited Liability Corporation - many haven't a clue what the tax consequences of the LLC are. If the client won't follow your instructions let the lawyer do the taxes.

[jainen]

>>you don't think the lawyer will point the finger at me in a heartbeat?<<

I should have started my response by asking what your role is. Personally, I never do bookkeeping, payroll, or accounting, and my engagement letter says exactly that. For me, the only issue is to advise them of possible tax consequences, but to fill out the tax return according to what actually happened. I would have few clients if I refused to help anyone who didn't document payments in the officially approved way.

If this were a bookkeeping or accounting engagement, however, I would of course resist improper procedures.

[RitaB]

Update on the members and payroll situation: I cooled off a little, and it occured to me that I can deduct some of their gauranteed payment, let the LLC hold it for them, and use it to make quarterly estimated tax payments for them. They are beside themselves with joy and appreciation, and think I'm a wizard now. I can't believe it. I think my role here is Mom, jainen. You kidder, you.

[RitaB]

Ok, this is ridiculous. One of the members calls, Dad is all for it, but he wants to open a separate account at the bank, and we'll deposit what we're deducting into that account...blah, blah, blah. Me: That is really not necessary. Kid: Dad is afraid he'll spend the money if we don't do that.

I guess the apples don't fall far from the tree. Some people should never own a business. This guy is retired from a government job. That explains a lot.

[GeneInAlabama]

Sounds like a pretty good idea to me. Of course I worked for the government for more than 15 years, so what do I know?

[RitaB]

Sounds like a pretty good idea to me. Of course I worked for the government for more than 15 years, so what do I know?

Oops. Sorry, Gene. Actually, now that I think about it, I worked for the government for eight years myself. High school math teacher. Boy, my face is red!

[Lion EA]

Why not just send in an estimated tax payment with (at same time as) each draw? IRS won't mind getting more payments more often. No one has to remember when to send in. Dad won't be afraid kid will spend it or you're embezzling or whatever his concern is. It'll feel more like w/h from payroll to those who have been asking for payroll. I had one client I gave a bunch of blank ES coupons to, well, amounts were blank, her info was on the rest; she's a headhunter and liked to pay her taxes from each fee she receives. Had trouble getting her to do at least four and at least on the due dates, but some years she did many more. She was happy and did record when and amounts for me.

[RitaB]

Why not just send in an estimated tax payment with (at same time as) each draw? IRS won't mind getting more payments more often. No one has to remember when to send in. Dad won't be afraid kid will spend it or you're embezzling or whatever his concern is. It'll feel more like w/h from payroll to those who have been asking for payroll. I had one client I gave a bunch of blank ES coupons to, well, amounts were blank, her info was on the rest; she's a headhunter and liked to pay her taxes from each fee she receives. Had trouble getting her to do at least four and at least on the due dates, but some years she did many more. She was happy and did record when and amounts for me.

Hey, that's a good idea. When I figure the monthly payroll deposits, I could also give the members a coupon and check so they can send in a payment. Thanks. (Boy, these people are a lot of work.)

I don't sign any checks, so I think Dad really just can't manage money any better than the kids can.

[Maribeth]

Hey, that's a good idea. When I figure the monthly payroll deposits, I could also give the members a coupon and check so they can send in a payment. Thanks. (Boy, these people are a lot of work.)

I don't sign any checks, so I think Dad really just can't manage money any better than the kids can.

You can also set each member up on EFTPS and deposit their estimates that way. You can also set the payments up in advance. We have on "forgetful" client that we set up on EFTPS, she wanted monthly payments, and she loves it.

Maribeth