Recently, we sent an email to our database suggesting that many of you might want to form a C corporation in order to take advantage of certain tax benefits in a C corporation. In response to this email, I received the following comment from my friend and respected Arizona attorney, Richard Keyt:
Tom, Arizona law does not have a type of entity called a C corporation. Don't mix the type of entity formed under Arizona law with the method of tax under federal income tax law. The corporation is an obsolete entity type in Arizona except in a few limited circumstances. The term "C corporation" confuses lay people and makes them think they should form an Arizona corporation when most of the time they should form an LLC. If it is appropriate, the members of the LLC can then file an IRS form 2553 and cause the LLC to be taxed under subchapter C of the Internal Revenue Code.
First, I want to thank Richard for his comment because if he found something confusing then chances are that some of you had the same question. Second, let me be clear that when we offer tax advice, we are only offering tax advice and always recommend that our clients speak to their attorney for the legal aspects. And when you do tax planning, you have to think in terms of the Internal Revenue Code. Under the Internal Revenue Code, there is a C corporation and there is no such thing as an LLC. I understand that this can be confusing because income tax law is different from state statutes. We frequently recommend that our clients form an LLC and then elect to tax it as a C corporation (not so in all states, but in many of them, an LLC is preferred to a corporation for asset protection reasons). But let's be very clear that for tax purposes, it is a C corporation we are talking about and recommending.
By the way, Form 2553 is used to elect to be taxed as an S corporation, not a C corporation. You will want to use Form 8832 to elect to be taxed as a C corporation.
Hopefully, this clears up any confusion. If any of you have additional questions, please email me at cs@provisionwealth.com or call our office at 866.467.5809.
If you have not subscribed to our newsletter, please go to http://www.provisionwealth.com/wealthu and sign up to be a member of ProVision's Wealth Strategy U.
Warmest regards,
Tom