Gibson Law Group - June 2018

ARE FRONT COMPANIES STILL BUSINESSES?

without too many questions about where the money came from or how much went through their operation. Racketeers could take funds obtained from criminal ventures, send them to Vegas, and claim them as house winnings. BARS Building a strong customer base is one of the toughest parts of any successful business. Well, when you can create customers out of thin air, you eliminate that variable. Before bars began to be regulated, this is precisely what made them ideal front companies. Bar owners could create invoices for patrons who never existed and use the cash from their hidden illegitimate practice to make these patrons appear real. SHELL CORPORATIONS The constant upkeep of a brick-and- mortar location can be a huge expense for any owner. But if your business only exists on paper, you don’t have to deal with any of those

Running a business is hard, but you know what’s even harder? Running a fake business. Front companies have been around since the early 1900s and have been steadily increasing in recent years. A front company is a business that presents itself as one entity but operates as another. They are usually set up by an organization with the intent of disguising an ulterior motive. In some cases, this is for good reasons. The CIA sets up front companies to give their agents legitimate backstories. In other cases, front companies are created to protect criminal organizations. Here are some of the latter. CASINOS Most businesses never get off the ground because they can’t find startup capital. You need these funds to pay employees, purchase operating space, and provide your service. In the case of the early days of Las Vegas, limited oversight and regulation allowed businesses to operate like the Wild West. Mafias could build casinos

CHANGES TO PARTNERSHIP

• An underpayment that results from a failure of a Partner to conform to the partnership reporting of an item is treated as a math error on the Partner’s return and cannot be abated. The underpayment may be subject to additions to tax. • The Partnership and the Partners are bound by all actions taken by the Partnership Representative. Partners have no rights to participate in the partnership proceeding. AUDIT RULES THAT MAY AFFECT YOU We recommend the Partnership consider adding a provision to its Partnership agreement if it wants to require Partners (current/ former) to cooperate by providing information or if Partners want to participate/have a voice in the proceedings. If The Gibson Law Group drafted your Partnership or LLC agreement, please contact us to discuss these changes. If you have any questions regarding the new IRS audit rules, please contact David Gibson at (817) 769-4044 or David.gibson@gibsonlawgroup.com.

The new Centralized Partnership Audit regime is now in effect for partnerships, including limited liability companies (LLCs) and family partnerships that are treated as partnerships for tax purposes. The new regime was enacted by the 2015 Bipartisan Budget Act (BBA) and applies to all partnerships for taxable years beginning after December 31, 2017. Partners should review their current Partnership Agreement with their attorney to address the following changes. Revisions will likely need to be made to the Partnership or Operating Agreement. • The BBA requires that each Partnership designate a “Partnership Representative” who does not need to be a Partner but has the sole authority to act on behalf of the Partnership and to bind the Partnership and its Partners. This is an annual designation. The Partnership Representative replaces the “tax matters Partner” under the old rules but without the attendant protections for Partners. • There is no longer a requirement to give Partners notice of any audit commencement, negotiations, etc. All information is conducted through the Partnership Representative.

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