Episode 077 – STRR – Interview w/Attorney Carolita Oliveros on LLC Protection – P1Nov 05, 2021
In this amazing interview with attorney, Carolita Oliveros, Michelle and Carolita discuss LLCs and pretty much any questions you may have in regards to LLCs. How do you form one? Should they be Single Member? What does “Piercing the Corporate Veil” mean and how do you avoid it? Listen to Part One this week.
Transcript of this Episode:
Hi, this is Michelle, the master of money mindset, and you are listening to BNB dash boss podcast.
and in today's podcast, it's Friday.
It's replay for. And so we are going to be playing the replays of short-term rental revenues interview with Kara lead out. Alverez Kara Leda is my attorney and my very dear friend. I love her dearly, dearly, dearly, and we did a very long episode with her. We had to break it up into three different parts because it was so incredibly long.
So for the next three weekends, please listen to Kara Leda. She's going to discuss with us LLC. And everything you need to know or want to know about LLCs, how to form them, what kinds of LLCs there are, whatever you need to know over the next three weekends, we're going to be doing the replay of our interview with Kara Leda.
Alverez I'm going to listen in, but I doubt I'm going to pop in until the end of these episodes. So have a listen and joy, and here is part, one of Carolee does interview on the LLC. But my interview with my very good friend attorney Carlita Alverez and she is a genius and a sweetheart for her going through.
She gave us a two hour interview last time, and I thought that was long. We went bout two and a half, three hours this time and got some amazing, amazing details for you. We're going to split it up into a couple of different episodes because we don't want to make them too. Because it is legal talk, but it's very, very interesting.
You're going to love it. And there's some great, great things you're going to learn here. So you need to listen to this. This is going to help protect you, but lead is going to give you a bunch of great wisdom in these episodes. So please, please take heart. Make sure you have a note pad next to you so you can take.
So not only is Kara Leda, my friend, my mentor, and a business partner, we've been in businesses together, but she is an author speaker international business attorney. She focuses on work with clients and international business. E-commerce international manufacturing, distribution, marketing, marketing, and products and services.
I mean, she's huge just in the technology and intellectual property realm and real estate investments, of course, asset protection. So Kara Lita holds a bachelor's degree. From the university of Florida, a master's degree from the university of Texas, at Austin and a Juris doctor from the university of Arizona college of law.
She's amazing. I mean, during the past 30 years, she's done so much. She's been a faculty member for the American law Institute, the American bar association, distribution and marketing seminars. She's been a faculty instructor in the McGuire entrepreneurship program at Thunderbird, the American graduate school of international madness.
A faculty member in the best brilliant ideas, business plan, contest, and author of courses on leading a nonprofit organization, instructor and author of the rich dad, personal finance courses, which he also co-authored for the rich dad company. And she's the founder and author and developer of seminars, workshops, educational material, coaching programs, recession proof, financial strategies, recession proof, investment strategy.
She is vice chair of the Southern Arizona district export council. It's an appointment of the us secretary of commerce, and she has passed here of the Arizona world trade fair and past chair of the Tucson metropolitan chamber of commerce international trade committee. She consults with numerous investors and companies on establishing foreign entities and begging relationships, asset protection, residencies, citizenships, international distribution channels for products and services, business development, technology, and intellectual property protection, real estate, and other legal matters.
And she is frequent. Uh, speaker in conferences, seminars, and webinars. So this is my friend, my dear friend, and mentor Kara Leda all of ours, but I'm so glad that you did this for me and came back on because it was such an important episode too. Like, I really wanted to get that information out, everything we talked about.
Was so relevant. And especially now, there are so many things going on with people that they just don't. They just don't realize that if you're not protected, if you don't do things the right way, the legitimate way, use entities the right way, use your IRAs the correct way. If you don't do these things, you don't just lose a little or what you have invested.
You can lose everything. It's just, you know, people just need to know how incredibly, incredibly important it is to do it the right way. The first time, you know, it's a lot easier to get it right the first time than it is to go back and fix everything. Although, you know, we'll talk about some things you don't have to start all the way out.
I mean, you don't have to, you know, if you're going to have umbrella corporations and all these little, you don't have to form everything right now, you can have a plan and execute part of that plan. Now in some later, At the same time that it's going to be a lot easier to start in the right places and do it the right way and less costly too.
I mean, I think even as important in that equation is what's it going to cost you to fix it? You know, if you don't do it right the first time, what's the cost to go back and redo it and to fix it. Yup. Because the cost escalates it does attorneys or attorneys aren't cheap. That's why I didn't want to call you back.
I was like,
anyways, you're here. I here, I'm here this time. I'm to remember, to put my disclaimer up front because I think we got almost to the end last time and I. Well, when we do that, put the disclaimer in there for the listening audience. This is not legal advice. This program is for education purposes and to kind of give you some ideas and some guidance on how you can proceed.
What's your options are, but every situation is an individual situation, you know, regardless of what the textbooks tell you, I can tell you from 35 years of experience, that every situation is a custom situation in one way or another. So you really do need to seek good help, good legal help, good financial help.
Take the information that Michelle and I will give you today and put that in your toolbox. And use it as part of your tools so that you will be guided to know where you need to proceed to next and how you need to proceed. But this is not a legal solution for whatever your individual problem. Right. You know, people say, I can't afford to hire an attorney or I can't afford to do this.
And my answer is you can't afford not to. Yeah, you really can't. You need to do it. There's some things you need to pay for and it will pay for itself over and over again. And that, that is definitely legal advice. Good legal advice like is that I'm like, Ooh, well perceived that with good legal. Like one of the things we're going to talk about today, Michelle is, you know, what is a limited liability company and how has it formed?
Okay. I just went through this with an entrepreneur and his assistant here in Tucson and the assistant said to me, oh, don't worry about it. I I'll just fill out the forms online to set up the LLC. You know, you don't need to worry about that. I can take care of it. And I said to her, well, that's fine, you know, but I really don't mind just revealing it.
If, if you wouldn't mind sending me. You know, print out the forms, fill them in and just send me your draft and let me look at it just to be sure, because what people don't understand a lot of times is that those forms are deceptively simple, but there are knowledge tricks to filling out those online forms.
And it's not always intuitive. I mean, you think you've got them filled out. So she sends me the forms. She had forgotten to put on there, several things she forgot to put on there, the acceptance form for the statutory agent because that's required. And she, another thing that happened was that she for, and this is common.
It's not that she made this mistake. People make this mistake all the time. She filled out the manager struggling. Form instead of the metamours structure form, right? Ah, yeah, because if you want to reserve management to the members of your LLC, you check the little box on the articles of organization that says that it's going to be member managed and then you have to fill out the members structure.
Because manager managed usually means that it is a paid manager, that you've got somebody that you're paying to be the manager. It's not, the management is not being reserved to the members themselves. So I mean, it's things like that, Michelle, that are not, it's just not intuitive. I mean, you can learn all of those little tricks if you do it enough and you get corrected enough, but now the ACC.
If you don't send them forms correctly, they reject it and they send it back to you. Yep. And a lot of people with this statutory agent that has to be in the state in which it's registered. So they talk people into, for instance, registering in Delaware, you know, that's a big thing we need to register in Delaware.
And then you'll have to have somebody who's the statutory agent in Delaware. Who do you know in Delaware? Well, you hire one. I mean, that's the whole thing. You know, their whole system is set up to promote Delaware. Uh, they call them residents agents up there. You know, you have to hire a resident agent, which is not a horribly expensive thing.
I mean, it's somewhere between $150 a year and $200 a year, depending on who you hire. So, I mean it's, but it's just yet another expense and it's yet another detail that you need to deal with. And if you're just like, if you're just starting out in investing, do you really need to use Delaware as the state that you register and file your LLC in?
I mean, does it really matter or what would it behoove you to just do it in a state that you live in? Well, here's, here's another little secret. A couple of secrets. Delaware's really good. We know that because Delaware has been a leader in corporate law for decades, they were an early adopter of some very avant-garde legal thinking about corporations and LLCs and a multi series LLCs, et cetera.
So they've always had a reputation. For being ahead of the curve. Well, they're not ahead of the curve anymore. And most ways Delaware charges a franchise tax, even on LLCs, not just on corporations, but also on LLCs. And that's a graduated taxing structure. Most people don't know that they don't even get that information.
I mean, you've got to search through the Delaware website and start looking at tax ramifications of things and what their taxing structure is there to find it. That even LLCs have to pay a franchise tax. So that's one thing Arizona does not have. We don't have a franchise tax in Arizona, and it's very, very reasonable to set up an LLC $50 for registration fee.
And if you want to expedite that, meaning that you want it done within a week or two weeks, as opposed to whatever their online timeframe is. You know, which could be six to eight weeks, depending on the time of the year and how back-loaded they are. If you want it right away, then you pay $35 extra. So in terms of an initial cost to set up an LLC, Arizona is one of the most reasonable and all 50 states and we have no franchise tax.
This is a great state for doing real estate and it always has been. Well, and the other thing is we have a charging order law here, which not all states have. And what that means is that someone cannot just Sue the LLC. They have to go get a charging order in order to suit the LLC or to get to the members of the LLC, which makes it more difficult the long, and the short of that statement is that it just provides another barrier against losses.
And that's, that's another thing that you want to look for when you're looking at a state to set up your LLC. Again, I do. Most of my LLC is out of Arizona now just because, unless I'm doing business, when I'm doing business in Florida, then they're in Florida. What I like about Florida is when I do trust here in Arizona, you can't have anonymous trust.
Yeah. But in Florida you can. I like to be hidden as much as I possibly can. It's like, but that's only as I, I didn't start off that way because it didn't really matter if I didn't have a lot, I wouldn't care. But it's now nowadays people will find you they'll find you online. They'll see you own. I mean, we were just talking about a company just a few minutes ago.
You and I. And how long did it take you to find the name of the LLC? Um, about 60 seconds. There you go. It was like, we knew them. We knew where they went. We knew where their kids were going to school. I mean, we knew everything. I mean, did we not? Yeah. I mean, it was crazy. And just a matter of just in, like you said in about a minute, we could find everything about them.
So it's, it does behoove you in some ways, but especially the more and more. Um, those layers of protection, the barriers become more and more important, you know, and you raise a really good point, the whole, the whole issue of security and privacy. Because another thing that I tell my clients, when they send me their information and they send me their home address and I, I say to them, okay, great.
But I have some real reservations about putting your home address on the form as the member address or as a statutory agent address because whatever is on the Arizona. Corporation commission website is public information. Anyone anywhere worldwide can find that information and show up at your house process server to your house.
You need to be mindful of that. So it never hurts. Now. Statutory agents in Arizona have to have a street address. Right. So there's no PO boxes and there's no, you can't even use a ups address. That's correct. Um, so they can tell if it's a suite number or something, that's not going to work for them either, but you know, you can use a PO box as your address as your mailing address and your address.
If you're just a member, if you're listed as a member, not as the statutory agent. Or if you list the address for the business as your home address, you know, I'm, I'm just pointing these things out for people to think about. Because again, if that address is there and somebody is looking for you, that's exactly where they're going to go to find exactly.
So it's a real privacy and a security issue in my mind. And I try to be very careful with my own clients about it. To make them aware of that, because if you don't care, if everybody and his brother shows up at your front door, that's one thing, but I wouldn't recommend it. Yeah. Agreed. Agreed. That's not what we want.
So how do you form an LLC? How easy is it to form an LLC? Oh, it's very easy. It's very in Arizona. It's very easy. It's it's and it's getting much easier in other states. Some states and Florida was one of them actually for a long time. It's not that way now they changed the law finally, but Florida for a long, long time would not allow you to have a single member, LLC.
You had to have at least two members. Oh, wow. Yeah, you can. Now, now in Florida, they've changed the law. Now you can do a single member LLC, which is true now in almost all states, all states have eventually come around to the realization that single member LLCs are. Just fine. You know, that you can, you can have a single member, LLC.
There are some interesting things though, that you want to look at with regard to the whole question of taxation and how an LLC is taxed. If you're, if you're doing an LLC with two or more members, then you're either a partnership and that's the default position. IRS looks at, uh, an LLC with two members as a partnership, unless you tell the IRS differently.
So you can apply for your EIN, your employer identification number and submit it under a partnership. Or you can file the paperwork to create an S-corp. Which is another type of a flow down. And this is for tax purposes because it's still an entity is still an LLC that doesn't change. It's just that you're notifying IRS for tax purposes.
That it's either going to be taxed as a partnership under the partnership rules or as an S-corp under the S-corp rules. Or you could even have it text taxed as a, a corporation. If you want it to, um, most people don't choose that because you can just set up a C Corp, but you could, if you wanted to. So, Michelle, I know that you're painfully aware because I can remember back in the days when the, the know your customer rules first came in to being.
And you had an offshore account and you were bent out of shape royally. I was mad at Mike. You called me on the phone ranting and raving because they wanted all of this information from you. And I was, I was ready to call Mike Mahoney and break his arm, man. He was like, oh kitty, who's this company. I recommend them.
Huh? I was calling Mike on his personal cell, going Mike. They have frozen my assets. They think I'm a terrorist and I need to buy a house. And there's a few hundred thousand that I can't touch right now. Yes, that was awful. Well, those KYC rules are now part of the banking requirements in the United States.
So if you go, you've set up an LLC, okay. You filled out the paperwork and you've set up your LLC. Let's just say you did it in Arizona for simplicity sake and you filed it. You paid your 50 bucks or you paid your 85 bucks, whichever, and you want to go to the bank and set up a bank account for the LLC?
Well, if it's a single single member, LLC, then. When you go to apply for an EIN number with IRS and you put down that it's a single member, LLC. IRS is not going to give you an EIN number. They're going to tell you, you have to use your social security number, your personal social security number. Now that's not true if it's two members or more, because it's either a partnership or an escort and you can apply for an EIN number with IRS.
So you don't have to use your social security number if you're a partnership or an S-corp. Does that make sense? Yes. Okay. So you take single member S Corp? No, no, you're you're by default with IRS, you are a disregarded entity. Okay. Which means that on your personal 10 40 on your tax return. There's this document called a schedule C where are you going to put down all your entrepreneurial type businesses?
You're going to list the LLC, but you have to declare that it's a single member, LLC. And therefore it's a disregarded entity for tax purposes, which means that you have to use your personal social security number because that income is just automatically personal and. You can still run it like a business and you can still take deductions business deductions against it, but the income goes directly to your 10 40.
I did not know that because I always go online and get the EIN numbers off of the, um, wizard that IRS wizard number, you get it like instantly. Right, right. But it won't give you an EIN number. If you put on there that it's a single member, LLC. Oh, okay. All right. It will give you a window that describes to you what a disregarded entity is.
So they're getting more stringent about that, Michelle, cause you used to be able to get away with it. I know because I have two LLCs of my own, which are both single member LLCs, and I have EIN numbers for all, for both of them, but I got them like years ago. Before they really started checking any of that.
Well, I mean, there's reasons for that too, because there are a lot of really, really bad people out there doing really bad things and just taking advantage of how easy it is to form an LLC. And, and then how easy it is to take advantage of people when you do so. I can, I can kind of understand it, sad that they ruin it for everybody else though.
It ruined this for everybody else now. Yeah. Well, you know, it's all part of the global scheme. Yes. It's all part of the, know your customer rules. And you'll find that even when you fill out that form at the bank, The signature card where you fill out the name of the LLC and who, who the beneficial owner of the LLC is.
Yeah. And if you put down which you have to, because they'll look it up on the state website, banks have gotten savvy about that now, and they'll just log right in and pull it up to see whether or not you're really registered and to see how it's registered and who the member. Yup. And it's super, everything is electronic now.
Yeah. They can do everything instantly across thousands and thousands of miles. Oh yeah. And if you tell them that it's a foreign LLC, I mean, some, I've got a couple of Nevada LLCs, they just plug right into the secretary of state website in Nevada and pull it up to check that. So, yeah, we're just electronically connected everywhere these days.
It's not easy to get around the system anymore, if that was your intention. Yeah. But to do it correctly, as you said, at the very beginning. So now I always thought, and I bet you, a lot of people fought. Like I do that. A single member LLC was better because of then I didn't have to do all those meetings. I only had to have a meeting with myself every year and that's still true.
That's still true. So I was like, here's the best part of being a single member, LLC. I don't have to have all these recorded meetings, but what's the real difference between a single member or having two or more months. Well, in both cases, you've got the liability coverage around. You have the LLC, which is good because even as a single member, LLC, you still want to have that liability coverage.
And if you're really operating an ongoing business, I mean, whether it's buying real estate or you're manufacturing a product, or, you know, whatever, if you, if you're really. Running a business out of the LLC. Then you certainly want to have that law, that limited liability coverage around you, whether you're a single member or have more than two or more members, really.
And truly the difference would be Michelle that before. Sole proprietors had no coverage at all. I mean, if they had insurance, they were lucky and many sole proprietors didn't even have that because they were small business owners and didn't really have probably a lot of money to spend on insurance. So if you're a sole proprietor and you've got no LLC wrapped around you, then, oh my goodness.
Yeah. If somebody comes after you, they can take your car, your house, they can freeze your bank account. I mean, you know, it's down to taking your toothpaste and your first born child. I mean, yeah. You're open for grabs. Yeah. That's not true if you've got an LLC wrapped around you. So I still say that it's important.
Even if you're a sole proprietor, a single member, LLC, at least set that up. And the other thing is that I know that a lot of people who set up single member LLCs either don't realize it or have been given maybe some inaccurate information. But I would still strongly suggest that you have an operating agreement because the operating agreement is the rules for the LLC.
If you've, if you're two or more members than it's like a partnership agreement, it spells out who does what in the LLC. You know, if, if one or both of you are managing members, what are your responsibilities? If something happens to one of you, one of you gets divorced or somebody goes bankrupt or someone passes away, or somebody just wants out because they're not interested in doing that anymore.
I mean, so what are the buyout provisions? You know, how does, how does your interest in that LLC? What happens to it? You told me once a long time ago, that regardless of whether it was, um, a single member or, you know, add two or more members that I should always treat it as if it had more members and to always write everything in an agreement to myself.
So if I was lending money to myself from, you know, personal money and I was paying it back in a certain way or whatever I was doing to treat it as if there was somebody else that I had to explain it, And that I still hold true to that today. And the reason for that is because if somebody is after you legally, for whatever reason, one of the ways that they can get to you personally is to Pierce the corporate veil.
And that means that they will come after you personally, they can do that. Michelle, if there are no formalities, That have been maintained in the LLC, even though it might be a single member LLC. So like, if I RS for example, wants to come in and say, well, this wasn't really alone. It was really income and you didn't report.
You've got the documentation to show that in fact it was alone and in fact it is being paid back or whatever the terms of the documents say. And other words, it's just the formalities of doing business and setting yourself up correctly and maintaining that so that somebody can't come in and Pierce the veil and say, you're personally liable for everything you have.
So when you Pierce the corporate veil, it's doing things like. You know, going to McDonald's out of your corporate account or, and I think I talked about this on one of my podcast ones when I got stuck somewhere. And the only card I had was my business card, but it was not a business expense and I would not use my card.
And, and I was just like, I can't, because there's no way I could explain it. And I remember you always saying, don't do it. You'll be tempted, but don't do it. And so even when you go to Costco or something, you have one transaction for your personal items, one transaction for your business items, you Pierce that veil.
Yeah. That's that's the, the best way to do it. You know? I do. I do. In fact, I've, if I can digress for just a second know. A real life example. Absolutely. I've got a client right now, actually two clients right now. Who are being audited by IRS and it's these audits have been going on since 2013. Oh my God.
Oh yeah, no, this is it's awful. I'm telling you. It's awful. Um, and the one case the entrepreneur was doing just exactly what you just said not to do. And that was that on his personal credit. He was charging everything, his, all, all of his personal stuff, his business stuff, everything there was, I mean, everything was co-mingled in the bank account.
Everything was co-mingled on the credit card. Everything was co-mingled and IRS has gone through, you know, they can go back three years. And if they suspect fraud, they can go back forever. So they have requested all kinds of audits on all kinds of other years, they've looked at everything they've pulled every bank statement, they've pulled every credit card statement.
It has been a painful experience and we're not finished with it yet. We're finally, we're finally in, uh, at the appeals process and tax. And I can't even tell you what the final cost on this is going to be. Oh my God. I mean, so far because I had to hire, I mean, I'm not a tax attorney. I can't practice in tax court.
I can't hold myself out as being a tax attorney, you know, because you have to have special credentials for that in order to practice in that area. And. I had to hire somebody who is a tax attorney, who does practice on tax court to take this to tax court and to negotiate with IRS. I mean, we're up to a couple of hundred thousand in penalties and like a house and penalties and interest.
Yeah. And now we're, you know, now we're going before a judge in tax court. So not, not including mine. Just where the, just for the tax attorney's fees. I mean, he's about 75,000 at this point. So, you know, don't, I mean, just don't go there. Just don't go there. That's all I can say to you. You know, when we were joking at the beginning of this call, we were saying that, you know, it could be expensive to sometimes you can't even undo something.
I mean, you might be able to mitigate it, but there are certain circumstances when you can't even totally fix something. And we're not going to be able to totally fix this. We're going to be able to mitigate it. We hope we hope we're going to be able to get that 200,000 in penalties and interest down because they're claiming as all of all of this other money was his personal income, you know?
And so with IRS, it's not guilty, it's not innocent until proven guilty. You're guilty until you can prove that you're innocent. Right. And. They can come in and seize your property. They don't have to have any kind of judicial order. Like they'll just come and take your stuff. They'll freeze your assets, your bank, and still freeze your assets.
It's called civil forfeiture. And it's not just the IRS. I mean, there are other agencies that can do the same thing. Yeah. So. I, I'm not trying to scare anybody to death, but just take my word for it. It's not fun. It's really expensive. And it is no fun whatsoever. And it will consume your life for a number of years.
Wow. That was just so sad. That's the end of my real life. And I've got two who are two, who were in the exact same situation. Wow. What is the liability inside of an LLC? Uh, the liability inside. If, if you've got a multiple member LLC, then there's liability. If you're the managing member, then you may have, if you step outside the bounds of what the managing member is allowed to do, based on the operating agreement, you know, based on what the operating agreement says, then you may have some liability to the other members of the LLC, but basically basically the whole.
Reason for an LLC is that you have limited liability. That's why it's called a limited liability company, because your liability is only to the extent of your capital contribution to the LLC. So if you're doing a real estate deal, Michelle and everybody is putting in $10,000, let's just say then the extent of your liability.
Is your capital contribution, which is $10,000, or it could be less. I mean, it depends on the circumstances that you're involved in, but that's, that's why it's limited liability so that you're not having to assume the total liability for whatever happened. And so that comes to like funding and LLC, if you're a single member, obviously you're going to fund it yourself and you can fund it with personal funds or maybe an IRA or something.
Sure. So would your, um, would your operating agreement cover? What if you and I were to go in and let's say you wanted to, to put in a hundred thousand and I could only put in 50,000. Could you, you know, um, your operating agreement could discuss that or, and where those funds come from while your, your operating agreement for sure would discuss that because you show what the capital contribution, there's an attachment at the back of the operating agreement, that list, who the members are and what their capital contribution is and what their percentage membership interest is.
There you go. Okay. So if your percentage membership interest is. 75, 25 or 70, or, um, whatever the split is, depending on how much the capital contributions are, then that will be reflected on the attachment at the back of the operating agreement. And that will be according to what the disbursements are, or the distributions are out of the, so like you sell the property or you get income from the property and you make distributions to the members.
Out of the profits that are coming in from the real estate deal, whatever their membership interest is that percentage membership interest is probably unless the operating agreement specifies differently. That's probably going to be their percentage of the distribution. So every member may not get the same amount of profits depending on what their percentage interest is.
Did I get to your question? Yeah, that's perfect. But, and there's been times too, and we are, we've been discussing something called, um, co-hosting in the short-term rental industry and that's what. When somebody doesn't have a lot of money to invest in a short-term rental, they might go out and find maybe a homeowner who's selling their home, but the home is furnished or maybe it's staged and they can run and operate a BNB out of that property where they don't own the property.
And they're not necessarily renting the property from the homeowner, but they're doing all the work. So, so that would be an essence of deals that we made when we were younger. Um, especially, you can do this. Like I did this with my dad a lot when, when I had no money and I was, you know, younger, I'd say, all right, dad, you know you, and then later it turned, it flipped where I'd say, okay, you got all the money, you invest this much and buy the property and then I'll do all the work and then we'll split the profits.
So you can, but your, your operating agreement, everything that you have should be in there. Right? I mean, it should, it should say, okay, well, this person. It's basically like any contract where it says, um, uh, contracts tells you exactly what one person is doing, what the other person is expected to do and what the results should be, if everything runs well.
And if anything goes wrong, right? Yes. Correct. And so I think it's always good to have LLCs when you do any kind of a partnership with people that you love. Kara for it because it just, it keeps everything clear and divided. You know what I mean? Like, um, and especially if you're doing it out of your IRA, because there's a lot of different rules about when you run things out w using funds from your IRA.
Yes, absolutely. And you cannot, if it's an IRA, if IRAs are funding it, you cannot have it taxed as an S-corp cannot dissipate in escort. Yeah, because that would make it a flow through. Right? Well, it's a flow-through anyway, but an S-corp is a, is a, um, a personal it's you have stock. Okay. And S-corp is a type of corporation.
So you have stock and an LLC with members, that's a partnership. You have a partnership interest, or a membership enter. Oh, I see what you're saying. Okay. It's different. Yeah. Okay. Technically they they're different, but the federal rules say that IRAs cannot invest in escorts. So just keep that in mind, always ask, always ask because sometimes the entrepreneur who set up the LLC doesn't realize that and doesn't realize that all the IRA money that they thought they were going to get in to fund the deal, can't come in because.
Notified IRS that it's going to be taxed as an S-corp. So then you have to file another piece of paper saying I've changed my mind. We're going back to a partnership there's so much with the IRAs that you really, you really have to be so careful when we went down to Panama. The first time I remember, um, going in to take a look at some of the condos that they were building.
And they were saying, oh, you can invest your IRA, use your IRA, your self-directed IRA for this. And then I said, yeah, but then I can't stay there. And they said, oh yes, yes, absolutely. You can. And I said, oh no, I cannot, you cannot, you can rent it. You can rent it and get the income from it, with your IRA. But.
But I can't personally stay there or benefit from it in any way, shape or form. No, I act as a consultant to several of those, not in Panama, but in bullies. And, um, I run into the same thing. They refer people to me all the time from everywhere. I mean, Canada, the us foreign countries. And you know, you just have to say, I know that so-and-so told you.
But that's not really, that's not really the case you go, you mean they lied. Well, they misinformed you.
He's a salesman. He's not a lawyer. He wants to sell you the condo. He doesn't know what the rules are. Exactly. So it's pretty easy though. Once you get your LLCs and stuff to go in and well, not in Panama auto and get a bank account, but, um, but in the United States, once you have your corporate papers yeah.
All altogether and they, they send them back to you and you have your EIN number, um, that's then you're pretty well set. Right? Those two things should get you a bank account. Yes, definitely. And, um, but, but not overseas, overseas, it's a little more difficult. You gotta be introduced to somebody, right?
That's exactly right. You've got to be escorted into the bank. It's a little bit different. You're like what the heck is going on. And every bank that I've ever been to down there had an armed guard standing at the door. So yeah. Yeah. It's a little intimidating, but, um, IBCs we'll we'll have to do, uh, we'll have to do an entire show on that sometime because that's when he gets fun.
Guys. Imagine if you will having a property in Belize and a property and Panama and a property in the Dominican Republic and a property in Puerto Rico and being able to go and maintain, you know, look at those properties, visit those properties, tax deductible, at least one time a year. And just travel from place to place to place.
And I mean, to me that that's like my ultimate dream to be able to go around, to visit my properties and all these different places. And, and, uh, but, but again, then it's all those fun things that, you know, that we get to learn about on the way. So we'll have to do an entire episode on that because we will, we will definitely do that, Michelle.
I mean, because there are even some really neat things. I mean, with the laws in Puerto Rico, And the 4% taxation, um, you know, my advice is live in Puerto Rico and invest in all these other countries. And, um, our friend Mike, he went down there not too long ago, right before the hurricane and stuff. Remember?
Yeah, he owns, um, gold, silver.com and he, he wrote a really great book about investing in golden solar. But Mike is taking advantage of those tax advantages that are there, and that's what you really need to do. You're going to start taking advantage of taxes. You're like, there's a reason why they call them tax advantages.
Right. We will take advantage of this. I'm actually going to stop this right now and we're going to split this interview up because it was rather long, but we're going to begin it again. With the advantages of having an LLC, especially when you are investing in real estate. So we're going to continue our interview with Kara Leda next week on Friday's replay episode.
So make sure that you come back and listen to the part two of the LLC interview with Carolina, and then we'll have part three the week after which will be the week before. On things, giving God an special episode coming up for you that I think you'll really enjoy on the replay. So just stay tuned.
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