KING & I NVNES IN

 ~ A Caribbean Today advertising feature

U.S. tax facts and other myths CARICOM and U.S. to re-activate

of a limited liability company joint trade and investment council


 JOSE NUNEZ &
 MICHAEL ROSENBERG
 For decades, corporations
 have been the preferred
 legal entity used to con-
duct business or hold invest-
ments in the United States.
 Lately, however, with the
advent of the limited liability
company (LLC) this is chang-
ing and it is possible that the
preferred legal entity is or
would soon be LLCs organ-
ized under the LLC laws of
any state in the U.S.
 Like the corporation, the
LLC offers limited liability
protection to its members as
each member's liability is lim-
ited to each member's interest
in the LLC. Thus, if a liability
accrues within the LLC, the
members' personal assets will
be protected from a judgment
creditor of the LLC provided
that the company form is
respected by the members and
the courts.

PROTECTION
 An important non-tax dif-
ference between the corpora-
tion and the LLC relates to
another element of asset pro-
tection. In general, in the
event a judgment creditor of a
member of an LLC (not of the
LLC, but of the member per-
sonally) seeks to satisfy such
judgment with such member's
interest in an LLC, such credi-
tor will obtain only the rights
of an assignee of such mem-
ber. This assignee interest
would not give a creditor vot-
ing rights in the LLC nor the
power to force a distribution
by the LLC. As a result, the
LLC and its assets are protect-
ed from the judgment credi-
tors of its members.
 From a U.S. tax view-
point, the LLC may take dif-
ferent forms, but these differ-
ent tax forms do not affect the
LLCs separate existence and
liability protection explained
in the previous paragraph.
However, these different tax
forms would greatly affect the
ultimate U.S. income, gift and
estate tax consequences to the
entity and its members, and
thus, should be fully under-
stood before making a choice
among them. The different
tax forms that an LLC can
take are as follows:
 a) Disregarded entity By
default, if a single person or
entity forms a domestic LLC,
such LLC will be disregarded
for all federal tax purposes.
In this case, the LLC will be
taxed as a sole proprietorship
if the sole member of the LLC
is an individual, or it will be
taxed as a branch or division if
the sole member is a business


entity.
 This tax form results in all
of the LLC's items of income,
gains, expenses, losses and
credits being reported directly
on the sole member's income
tax return. As a result, the tax
consequences of this LLC
depend entirely on the tax sta-
tus of the sole member (e.g., if
the sole member is an individ-
ual, the tax consequences
would be those applicable to
individuals directly engaged in
the activity of the LLC).
Notwithstanding this, from an
IRS viewpoint, even if an LLC
is a disregarded entity, the LLC
may still be liable for the tax
liability of its single member.
 b) Partnership By
default, if two or more single
persons or entities form a
domestic LLC, such LLC
would be considered a part-
nership. Similar to a
Disregarded Entity, the part-
ners, and not the partnership,
include in their tax return the
items of income, gains,
expenses, losses and credits of
the partnership.
 c) "C" Corporation A
domestic LLC may elect to be
taxed as an association taxable
as a corporation. In this case,
the net income earned by the
LLC will be taxed in the
hands of the LLC at the cor-
porate tax rate and distribu-
tions of earnings will generally
be subject to a second round
of income tax in the form of a
tax on dividends or a tax on
gains. From an income tax
viewpoint, this is probably the
most inefficient vehicle to
conduct business or hold
investments.
 d) "S" Corporation An
LLC may also elect to be
taxed as an S corporation.
Unlike C corporations, an S
corporation generally avoids
double taxation as its share-
holders are subject to tax in a
similar manner to partners in
a partnership.
 There are, however, some
important d 11, ILr k nL and
these differences are the rea-
son corporations are losing
their appeal. In the domestic
area, an S corporation can
generally only have one class
of shareholders and this can
be quite limiting for establish-
ing modern ventures where
different class of interests may
be required for example deal-
ing with rights to profit or
rights to capital. In the inter-
national tax arena, an S cor-
poration is even more limiting
as only U.S. citizens or income
tax residents (and certain
trusts and other S corpora-
tions) may be shareholders of
(CONTINUED ON PAGE 27)


WASHINGTON, CMC The
Caribbean community
(CARICOM) and the United
States last month agreed to re-
activate a trade and invest-
ment council between them,
after several years of dorman-
cy, the region's chief negotia-
tor Ambassador Richard
Bernal has said.
 "This mechanism would
be available to discuss any
issue relating to trade and
investment. Whether it is
WTO (World Trade
Organization), the Free Trade
Area of the Americas, or any
bilateral trade and investment
issue," Bernal told the
Caribbean Media Corporation
(CMC).
 He said the U.S. Trade
Representative Rob Portman
made the proposal during
"frank" and "open" talks with


bernal


CARICOM trade officials
here.

NO MANDATE
 However, there is no
mandate for CARICOM to
raise the issue of a free trade
agreement with the U.S.,
Amb. Bernal said. He added
that while no follow up meet-


 with a DB&G



Guaranteed competitive returns on US$

 Tax Free
 Insured by the Jamaica Deposit
 Insurance Corporation
 Access to free wire transfers*


*Subject to conditions.


ings have been set between
the two parties, there was a
commitment to continue dia-
logue as the need arises.
 "Today, we had a wide
ranging discussion which is
useful to us because it pro-
vides a lot of additional infor-
mation on a variety of possi-
bilities," Amb. Bernal told
CMC.
 He noted that the Council
would not only promote trade
and investment between the
two sides but would also serve
as an early response mecha-
nism to any trade disputes
that may arise. It was first set
up between CARICOM and
the former Bill Clinton admin-
istration in the late 1990s.
 However, after two meet-
ings, it became inactive.
0


Take action to fight Internet financial fraud


 ANDREW LECKEY

 Anyone who uses a
 computer each day
 comes into contact
with more attempts at finan-
cial fraud than we used to
encounter in six months.
 In 2006, the Internet is
the efficient, cost-effective
way to mislead us about
investments or steal our
money outright. Most of us
regularly encounter "phish-


O V E R S


ing", a scam that employs
official-looking e-mails and
websites designed to replicate
real organizations, most
recently even the IRS. These
seek to trick us into revealing
personal brokerage account
numbers, Social Security
numbers, credit card numbers,
user names and passwords.
 We receive lottery-win-
ning and Nigerian Internet
messages promising enormous
sums if we forward financial


E A S


R E S I D


information and seed money.
The son of a prominent
Orange County, Calif., psychi-
atrist recently obtained a court
order stopping his elderly
father from spending more on
a Nigerian Internet scam he
had already given $3 million.
 We receive e-mail offers
in the guise of personal greet-
ings. In a consent decree,
Jumpstart Technologies LLC
(CONTINUED ON PAGE 27)


E N T S


DB&G MERCHANT
BANK LIMITED


DB&G Merchant Bank Limited,
2 Holborn Road, Kingston 10,
Jamaica, W.I.
Toll Free:
1-888-CALL DBG (Local)
1-888-241-2283 (North America)
0-800-917-9489 (England)
www.mydbg.com info@mydbg.com


Keep it

close to Home


May 2006


CARIBBEAN TODAY