alan smith wrote:
> For those outside the US..can probably ignore.  So I have a long term 
> "partner" who brings me in on projects when he needs a board or circuit 
> designed for his clients projects.  Its worked well over the years and now 
> he has a product of his own to design and sell.  Initially he approached 
> me and asked for a bid on doing the design, and I provided that to him. 
> Then he asked..do you want to just be paid, or have a cut of the profits 
> (always a risk)and honestly my time and materials on the board are about 
> $10, pretty small risk.  Now comes the question on tax liability.  He 
> wants to form a LLC, with myself and two others.  The LLC will purchase 
> the pieces from us...my board, his mechanical part all at 'cost' and then 
> we get paid back from the LLC, as profit sharing.  From a tax liability, 
> my costs for parts (no labor) are a tax deduction on my schedule C for the 
> consulting business, and then the profit is typically my design and build 
> time, very straight
> forward but its all under my company name.  Now that the LLC is thrown 
> in...I wonder how the IRS looks at me selling something to the othe LLC, 
> and then taking back profits.  Either the LLC pays me direct for the 
> costs, and then takes in profit sharing above that but it seems just 
> slighty odd and not sure completly legal to do.
>
> Just wondering if anyone else has been involved in something like this. Of 
> course the obvious answer is...talk to a tax attorny but figured I would 
> try to get some idea from the list...as there are several smart business 
> folks on here as well.

IANATA, the following is just my opinion, etc etc... :)

It seems to me, that what you proposed would be completely legal. The LLC is 
a separate entity from your physical person, so the LLCs can conduct 
business, even if they share members.

For a thought experiment, take it to an extreme. Say there are two LLCs, 
each with 100 members, and you happen to be a member of both. First LLC 
makes a gadget that is a critical component in a Second LLC's product. Would 
the IRS force you to sell your share in one of the LLCs, or force the two 
LLCs to merge? Unlikely.

Or consider a situation where you are a member of First LLC, and your spouse 
is a member of Second LLC. There's clearly a conflict of interest as far as 
IRS is concerned, right? Where would they draw the line -- immediate family, 
cousins, relatives twice removed?

If I were in this situation, I would not give it a second thought as to the 
legality of such arrangement.

Vitaliy


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