Your Client Has Operated a Sole Proprietorship for Several Years

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The Answer is a. The limited liability company (LLC) generally provides for Federal taxation under Subchapter K (partnership taxation) and limited liability for all owners. Therefore, LLC provides for the same protection from personal liability as a C corporation wh providing for (pass-through) taxation of LLC operations at the owner level. The C corporation double taxation does not apply to an LLC. Partnership provisions such optional adjustments to basis; special allocations of income, gain, loss, deduction, an credit; and inclusion of all LLC liabilities in outside basis are additional advantages LLC over a C corporation.
b. An existing C corporation should carefully weigh the consequences before convert an LLC. The IRS has ruled that a C corporation must liquidate and re-form as an When a C corporation liquidates, any appreciation in corporate assets triggers a corporate level gain. This results in immediate double taxation of the gain (at the corporate level and then as a shareholder gain or loss on liquidation of the entity). partnership, on the other hand, does not liquidate when it converts to an LLC, and appreciation in partnership assets remains untaxed.

Your Client Has Operated a Sole Proprietorship for Several Years

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