A limited liability company (LLC) is a business structure that seeks to protect an individual's assets if the business is sued or goes bankrupt. LLC can either be in the form of a company or holding entity for real estate, vehicles, boats, among other assets. If one person owns the business, it becomes a single-member LLC or multi-member LLC if owned by two or more people. LLC's main reasons are for asset protection, and it is easy to file with inexpensive registration fees compared to other business structures like corporations ( Skripak, 2016) .
Carlos' recorded hours do not represent his accurate working hours' since he was rounding off his restaurant shifts. If he followed the right protocol and recorded the exact hours he participated in the restaurant, they would have been below the 500 hours mark. If I were Carlos, I would not have filed the tax return as a material participant since the losses will be deducted by the Internal Revenue Service (IRS) from his active income. However, if the activity was declared a passive income with no other passive income, the IRS cannot deduct the loss from his active income, offering him a tax shelter.
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Taxes are the building blocks of the ancient and current governing bodies. The taxation of the poor and rich is problematic due to a country's need for funds. Moreover, these relationships get much more complicated when dealing with companies than individuals. Tax evasion is an evil practice that has always sought to unjustly avoid payment of taxes by looking for loopholes, failure to disclose profits, or differing from tax agreements.
Taxation is a mammoth issue in the Bible, especially in the Old Testament, where it was frowned upon if an individual did not tithe. The tax collected was meant for temple maintenance, feeding and clothing the priest, and taking care of the widows with their offspring. In the New Testament, the tax was now viewed as a moral issue as Jesus put it. Jesus was quite vocal about the unjust taxation imposed on the poor, mostly if they failed to pay and had their belongings forcefully taken. When questioned by priests in Mathew 22:17-21, if it was lawful to pay taxes to Caesar or not, he replied, "Why put me to the test, you hypocrites? Show me the coin for the tax." When the Denarius was brought to him, Jesus answered, " Whose likeness and inscription are this?" They replied, "Caesar's." He then replied, "Therefore render to Caesar the things that are Caesar's, and to God the things that are God's."
Carlos is faced with a moral dilemma of not filing as a material participant not to get the losses deducted from his accounts or dishonestly file as a material participant and have part of the losses deducted from his active accounts by the IRS. Furthermore, Carlos can face a challenge to prove his material participation to the IRS to turn his share of the LLC losses into non-passive losses. Carlos does not meet the 500-hour minimum to be a material participant but rather regarded as a passive earner. Consequently, if the business were to incur subsequent losses to the extent of bankruptcy Carlos and Lou's assets would not be forfeited.
Romans 13:6-7 states that the masses should pay taxes to authorities (in this case, IRS), for they are the ministers of God catering for its people. Pay to all what is owed: the taxes to those owed taxes, the revenue to those owed revenue, respect to those owed respect, and honor to those owed honor ( Pao, 2013 ). Small businesses like the hotel run in the neighborhood by Lon generate little profits, and they have to deduct the losses against other income bases. In this case study, non-managing members of an LLC have limited power to influence business decisions.
References
Pao, D. W. (2013). The ethical relevance of New Testament commentaries: On the reading of Romans 13: 1–7. In on the Writing of New Testament Commentaries (pp. 193-213). Brill.
Skripak, S. J. (2016). Fundamentals of business . Virginia Tech.
