November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park,...

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November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?” Mathew N. Sorensen, J.D. kkolawyers.com 856 South Sage Dr., Suite 2, Cedar City, Utah Telephone 435.586.9366 / Facsimile 435.586.9491 © Kyler Kohler & Ostermiller, LLP 2006

Transcript of November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park,...

Page 1: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

November 15, 2006

Webinar“The Pitfalls and Truth about Nevada Corporations”

S. James Park, J.D., LL.M.

“Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?”

Mathew N. Sorensen, J.D.

kkolawyers.com856 South Sage Dr., Suite 2, Cedar City, Utah

Telephone 435.586.9366 / Facsimile 435.586.9491

© Kyler Kohler & Ostermiller, LLP 2006

Page 2: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Disclaimer- Although the information contained in this Presentation may be extremely useful and helpful, please understand that the presentation of this information does not constitute an attorney-client relationship. Moreover, the information contained in this Presentation is for general guidance only. It is strongly recommended that each individual or entity obtain their own legal advice, particularly applied to their own set of circumstances, facts and specific situation. Kyler Kohler & Ostermiller, LLP is not responsible or liable for any advice that is taken and applied in a situation without direct consultation and representation specific to that individual’s or company’s needs.

Instructor Notes

© Kyler Kohler & Ostermiller, LLP 2006

Page 3: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

To Preserve Privacy

Why do most people incorporate in Nevada?

To Protect Assets

To Avoid Taxes

Page 4: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

The Half-Truths

To Preserve Privacy

What is Advertised:

To Protect Assets

&

Page 5: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

The Half-Truths

To Preserve Privacy

What is Advertised:

To Protect Assets

&

Page 6: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

The Rest of the Story

To Preserve Privacy

To Protect Assets

&

1. True, in Nevada, only the names and addresses of the Registered Agent, the first Board of Directors and the Incorporator(s) must be disclosed, along with the corporate officers – who can be the same person. (The use of a proxy or nominee may be used – but at a cost and with no guarantees.)a. The owners usually lose this privacy if the company: is

registered in another state (doing business), issues stock, obtains a Nevada business license, opens a bank account, has an employee or contractor (which it must), enters into any contract or agreement, or obtains a loan from a bank.

2. A Corporation is an asset protection tool WHEREVER you incorporate! The main purpose of its existence is to isolate the personal assets of an owner from that of a properly run corporation. a. The concept of the Corporate Veil is key to any business entity.b. It DOES matter, however, what type of assets are placed in a

corporate structure. There may be disastrous tax implications.

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The Rest of the Story

3. Despite what is advertised out there, Nevada corporate stock is NOT exempt from outside Creditors who obtain a judgment against the owner personally (Auto Accident = Law Suit. Law suit + Bearer shares = big trouble if you lie as to ownership.) a. NOTE: A study of case law does reflect that the

Nevada corporate veil is one of the hardest to penetrate. 4. It is true in Nevada that there is no information sharing with

the IRS.

To Preserve Privacy

To Protect Assets

&

Page 8: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

The Half-Truth

To Avoid Taxes

What is Advertised:

Page 9: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

The Rest of the Story

To Avoid Taxes

1. There is no Corporate Income Tax in Nevada (Only if you are a company doing business* in Nevada. If you are a Nevada company doing business in California or any other state, you will generally be subject to that state’s income taxes.)a. Excise payroll tax imposed on each employer at a rate of 0.63

of wages must be paid by employer quarterly. 2. There is no Nevada Franchise Tax (If you are a Nevada company

doing business in California or any other state, you will generally be subject to that state’s Franchise Tax.)

3. There are no Stock Transfer taxes on Corporate Shares. 4. There is no Minimum Capitalization requirement in Nevada.5. There is no IRS information sharing.6. Corporate federal tax payable is only 15% on the first $50,000 of

net income ANYWHERE!

* ‘Doing Business’ is a term of art and is defined differently in each state, but the underlying theme is the same. See the Miscellaneous slide

for what is NOT ‘doing business’ in Nevada.

Page 10: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

The Rest of the Story

7. There is no Personal Income Tax in Nevada (Only if you are a resident of Nevada. Example 1: Joe is a Nevada resident (his home and family is there) but he commutes to Cedar City to work M-F each week. Joe will pay Utah income taxes on 100% of the money earned in Utah. Example 2: Joe lives in Utah but works exclusively in Nevada. Joe will pay Utah income taxes as a resident of Utah. = There are no Income Tax Breaks if you are not living and working in Nevada.

To Avoid Taxes

Page 11: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Miscellaneous

Doing Business: In NEVADA ‘Doing Business’ does not include: maintaining or defending any legal proceeding, holding board or shareholder meetings, maintaining bank accounts in banks or credit unions, maintaining offices for transfer, exchange and registration or corporations own securities, making sales through independent contractors, soliciting orders outside state and accepting them outside of state and shipping goods into state, creating or acquiring indebtedness, mortgages and security interstate in real or personal property, securing or collecting debts or enforcing mortgages and security interests in property securing debts, owning real or personal property, isolated transaction not completed within 30 days, production of motion pictures, transacting business as out of state depository institution.

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CONCLUSION

The most common reasons for incorporation – INCREASED PRIVACY, INCREASED ASSET PROTECTION and LOWER TAXES AND FEES – are not as advantageous as some promoters taut them to be for most people .

Notwithstanding the above, Nevada certainly provides several protections for corporations, such as a higher standard for officer wrong-doing (much more than mere negligence as found in many states); increased liability protection for high-risk business activities; the appearance of an impenetrable shield; and ofcourse you generally will get the full package of promoted benefits if you are located in and do business in the great state of Nevada.

Page 13: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Option 1

IRA$$

SDIRA$$

Raw Land

- No Debt- No LLC/LP- No Partners- Direct Investment in name of IRA

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

Qualified Money and Real Estate

Page 14: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Qualified Money and Real Estate

Option 2

IRA$$

SDIRA$$

Rental Property(Income Producing)

Non-RecourseLoan

MortgageCompany

- Non-Recourse Debt- No Personal Guaranty- No Sweat Equity- No LLC/LP- No Partners- Direct Investment in name of IRA

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

Page 15: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Qualified Money and Real Estate

Option 3

IRA$$

SDIRA$$

Rental Property(Income Producing)

Non-RecourseLoan

MortgageCompany

- Non-Recourse Debt- Single Member LLC- UDFI tax- No Personal Guaranty- No Sweat Equity- No Partners- Direct Investment in name of IRA

SingleMember

LLC

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

Page 16: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Qualified Money and Real Estate

Option 4

IRA$$ SDIRA

$$50%

Limited Liability Co.

orLimited Php.

IRAOwner

40-45%

MortgageCompany

Guarantor

Rental Properties

3rd PartyOwner

5-10%- Recourse Debt - YES- Partners -YES- LLC/LP- Yes

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

Page 17: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Qualified Money and Real Estate

Option 5

Self Directed401K or Defined

Benefit Plan

50%

LimitedLiabilityCompany

MortgageRental Properties

Bs. Entity

- Defer up to $44,000in 2006 in 401K

- Contributions vary forDB Plan

IRAOwner

40-45%

Guarantor

3rd PartyOwner

5-10%

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

Page 18: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

Self-Directed Plan Compliance Issues

• Must be Real Estate Operating Company if the Retirement Plan and IRA Owner own more than 25% of the LLC/LP See 29 CFR Section 2510.3-101

• Can’t have 100% control of LLC/LP

• Prohibited Transactions Transactions with Prohibited parties Use of Property Compensation of IRA owner

• Administration duties Annual report/valuation to Custodian Bookkeeping and tax return

BEWARE!!This is not a comprehensivelist, and also requiresa properly drafted Company document!!

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

Page 19: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

UBTI and UDFI

• Unrelated Business Taxable Income (“UBTI”)•Exemptions for rental income, interest income, gains from sale of property other than property held for sale in the ordinary course of business.

• Unrelated Debt Financed Income (“UDFI”)

• Two Tier Analysis

• Real Estate Professional / Dealer Status

• Debt is the key calculation

• Trust Tax rates

• 990 Tax Return for IRAs, 5500 for 401ks

** This is only a survey of points to consider, these rules must be studied and implemented with care.

Self-Directing Your Retirement Plan for Real Estate: What Can I Really Do?

Page 20: November 15, 2006 Webinar “The Pitfalls and Truth about Nevada Corporations” S. James Park, J.D., LL.M. “Self-Directing Your Retirement Plan for Real Estate:

For more information, please contact us at:

KYLER, KOHLER & OSTERMILLER856 South Sage Dr., Suite 2

Cedar City, Utah 89720Tel: 801.586.9366 Fax: 801.586.9491

www.kkolawyers.com