September 14, 2023 • 30 mins
Attorney Lee R. Phillips is a Counselor of the United States Supreme Court. He has three university degrees and has held licenses in real estate, mortgage brokering, securities, and life insurance, as well as being a registered investment advisor. Lee is nationally recognized in the fields of business structure, asset protection, financial planning and estate planning. He is the founder of LegaLees Corp., a company specializing in solving asset protection and tax problems for high-net-worth individuals.
After graduating, he practiced law as a patent attorney. He spent 5 years in the dual position of Assistant General Counsel and Associate Director of Research at the nation's largest private university. Author of 19 books, Lee serves on the editorial boards of several professional publications.
At age 27, Lee spent 5 months in a university hospital ICU, and watched the legal system take everything he and his young family had. He understands first hand the importance of asset protection, and he wants to help others avoid personal disasters. As one of the nation's most engaging, dynamic speakers, he has given over 3000 event presentations throughout the US, Canada, and the Pacific Rim. He has helped over a million people understand the law and how to use it to make more money and protect their assets.
Learn more at www.legalees.com and www.llcwizard.com
After graduating, he practiced law as a patent attorney. He spent 5 years in the dual position of Assistant General Counsel and Associate Director of Research at the nation's largest private university. Author of 19 books, Lee serves on the editorial boards of several professional publications.
At age 27, Lee spent 5 months in a university hospital ICU, and watched the legal system take everything he and his young family had. He understands first hand the importance of asset protection, and he wants to help others avoid personal disasters. As one of the nation's most engaging, dynamic speakers, he has given over 3000 event presentations throughout the US, Canada, and the Pacific Rim. He has helped over a million people understand the law and how to use it to make more money and protect their assets.
Learn more at www.legalees.com and www.llcwizard.com
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to Just Minding My Business Radio, where we are moving at the speed
(00:05):
of God, learning what we didn'tknow we didn't know. I'm your host,
Iida Crawford, and I'm your cohost Rough Taskins. So grab a
pen and paper and get ready forinformation that you can use. Welcome to
Just Minding My Business Media LLC.Broaden the scope of exposure for your business
(00:29):
by going beyond the interview. Learnmore at www dot JMMB mediallc dot com
or email us at JMMB Radio atgmail dot com. When you write biographies,
whether it's about Ben Franklin or Einstein, who discovers something amazing, they
(00:50):
are human. Today we welcome AttorneyLee R. Phillips, who is a
counselor of the United States Supreme Court. He has three university degrees and has
held licenses in real estate, mortgagebrokering, securities, and life insurance,
as well as being a registered investmentadvisor. Lee is nationally recognized in the
(01:11):
fields of business structure, asset protection, financial map planning, and estate planning.
He is the founder of Legal LeesCorporation, a company specializing in solving
asset protection and tax problems for highnet worth individuals. At age twenty seven,
Lee spent five months in a universityhospital ICU and watch the legal system
(01:36):
take everything he and his young familyhad. He understands, therefore firsthand the
importance of asset protection and he wantsto help others avoid personal disasters. Welcome
Lee, How are you? Yesas well? How are you welcome?
Welcome. It's good to be herewith you. Yes, good to have
(01:57):
your Lee. Okay, let's jumpright into the period in your life where
you were in the hospital in theACU. Well, I was just graduated
from law school. I was actuallygoing to be a patent attorney. I
have a big science background, andI got sick. I was diagnosed with
(02:23):
cancer. It was testicular cancer.That's a closet cancer. Nobody talks about
it, and yet it's the leadingcauses cancer cause of death in males age
twenty to forty, So we needto talk about it. But that's beyond
this point. I was diagnosed andgiven a couple of weeks to live and
(02:45):
became the national guinea pig and spentfive months in intensive care. In another
three years and I didn't work.And basically, even though I was a
lawyer, the legal system took usto the cleaners. We lost everything.
My wife, my three children,and I would have been actually out on
the street had our parents not steppedin and helped us. So after I
(03:07):
got through being sick, One,you're unemployable, so nobody would ever hire
me again, which they never did. And two I looked at it and
said, man, we've lost everything. This isn't going to happen again.
So I started to study asset protectionand that works into business structuring and estate
(03:30):
planning and these types of things.But it's critical that you have a mechanism
that will protect what you build,big or small, and protect it when
something happens. And if I sayasset protection, you don't need jerk reaction
as a lawsuit. No, no, no, no, no. Fifty
six percent of all bankruptcies in theUnited States or a result of somebody getting
(03:53):
sick. So the question is,are you're going to lose your real estate
investments or you're gonna lose your littlebusiness when somebody in the family gets sick.
And the answer for me was yes, and the answer for you is
probably yes. The answer for metoday is no, I'm not going to
lose my business. I'm not goingto lose my real estate holdings. So
(04:14):
legally you can protect those things fromthe illness, the divorce, the lawsuit.
There are just lots of different thingsthat happen to people that threaten their
financial security. Is that what youwant to talk about then, Ida,
Yes, absolutely, because people needto be aware that you know, any
(04:35):
of these catastrophic events can happen toanybody, and how do how do we
protect ourselves? Well, you're goingto have to do a little legal juggling
in the in the beginning, butit's critical that you do it. A
man came to me in the earlyeighties and he wanted to set up a
(04:58):
direct marketing business, and by nineteenninety he got this marketing business, drect
marketing business up to about one hundredand fifty million dollars a year. He
was doing pretty good, and whenhe came to me, he said,
Lee, I want to make itso that if something happens my wife,
my kids, they're protected, theydon't lose everything. We can go on.
(05:24):
So I structured it. I usedsome simple legal techniques and made it
so that we took all the profitout of his business and moved it over
to his wife's business each year.Now his wife didn't have anything to do
with his business, and he didn'thave anything to do with her business,
but we'd move money over into herbusiness each year. Well, August two,
(05:49):
nineteen ninety, if I tell youwhat happened, you'll know where you
were the Gulf War started. Iremember I was actually driving from Boston to
Martha's vineyed doing business for this guy, and I listened to the war on
the radio. We'd never heard thewar, we'd never seen. CNN covered
(06:14):
the war wall to wall. TheUnited States had declared war. People are
afraid, and within forty eight hours, this man's business went from a six
hundred thousand miles an hour to zerofull stop. And there were so many
lawsuits. He held the post officetwo million dollars. He took down three
(06:36):
or four printing companies in the city. It was horrible. But he hadn't
done anything wrong. He did zerowrong. And there were so many lossits
that the Attorney general and the stateactually took over. That's a little weird.
And in the court, first thingthat happened was the wife's attorney stood
(07:00):
up and said, your honor,there's no allegation in this complaint that the
wife did anything wrong. She hadnothing to do with his business. And
the judge says, okay, boys, and turned to the Attorney General's group
and said well, and they cameback in about fifteen minutes and said,
no, we have no allegation againstthe wife. So the judge said,
(07:24):
fine, case dismissed with prejudice againstwife. Wife and her attorney stood up
and walked out of court, andthere was an audible in the court.
There goes the money. The lasttime I saw this couple was in their
penthouse on ConA Polly Beach on Maui, and they were in their mid fifties.
(07:46):
They never worked again. But hehad taken the time when he started
to say what happens if there's adisaster. He couldn't have foreseen the Gulf
War. He couldn't have foreseen whatit did to America's buying interests at that
time. And because it was directmarketing, he had so much money out
(08:09):
front. You have to push thisdirect market and you have to mail the
pieces, you have to do everythingup front, and he just he lost
everything, but we saved everything too, So you can do this, guys.
I'm going to cut to the Chase. What you're going to do today
is you're going to use a limitedliability company and LLC. You will not
(08:31):
use a corporation. The LLC givesyou twice as much asset protection as a
corporation. The corporation protects you fromwhat happens out in the company. The
LLC has the exact same corporate shieldor limited liability as a corporation legal structure,
(08:54):
except in addition to the corporate shield, the LLC has another asset protection
function which protects the business assets fromwhat happens to the owner. If you
have a corporation and it's my corporationand I get sick, or I declare
(09:15):
personal bankruptcy, I hit a kidin the crosswalk on the way to church,
I get divorced, whatever it is, they attack me. When they
attack me, they get the stockin my corporation. They now own the
corporation, lock, stock and barrel. In an LLC, they can't come
in and get the stock the membershipinterests as we call them. All they
(09:41):
can do is get an economic leanagainst the LLC, which they say charges
the debt that I owe against mycompany the LLC. But they can't tell
me how to manage it. Theycan't come in and sell it. They
can't do anything except if the LLCdeclares a profit, then they get it.
(10:07):
My creditor gets it. I don'tget it anymore. So the LLC
protects the company and the assets withinthe company from what happens to the individual
owners. That's a big difference,guys, that's huge. In fact,
in the twenty eight ten real estateturned down, I saw people that lose
(10:33):
thirty pieces of property. This onewould go bad, there would be a
deficiency. They give it back tothe bank. The bank could sell it,
there'd be a deficiency. So theycome to the owner. Now wait
a minute, this is in anLLC. Why can they come to the
owner because the corporate shield should protectthe owner from what happens in the LLC.
(10:56):
That's true, but I will guaranteeyou personally signed the mortgage, so
they just come back to you.So they come to you. If you
own this second house, they'll cometo the second house and get it.
They'll come to the third house andget it. They'll come to the fourth
(11:18):
house and get it. If thesecond house is in an LLC, fine,
they come to you. They geta judgment against you you declare personal
bankruptcy, they still can't get thehouse that's in this other LLC. It's
protected from what happens to the owners. We call it charging order protection,
(11:41):
and it is a very powerful conceptthat frankly, most attorneys just jump over.
They don't understand, they don't knowabout it, and they don't care
because frankly, attorneys make their moneycleaning up the mess. But I didn't
want them. I wanted to knowhow to do this to protect myself and
(12:05):
people I've worked with over the years. And I had to figure it out
on myself. I didn't by myself. I didn't work for firm, and
the lawyers work for firms and theytell them what to do. I had
to figure it out. And it'svery difficult to actually understand why is that
piece in that document it says this? Why does it say that? And
(12:28):
most lawyers can't tell you why.Very few can tell you why. And
so I studied it and studied itand studied it and finally figured it out.
It was my scientific background. Ihad to experiment with it, but
I figured out. And I'm goingto tell you, you want to use
(12:48):
an LLC, you do not wanta corporation. If you have a corporation,
you can change it. The statehas forms. Your state has forbs
that will allow you to change thell or the corporation, the corporate legal
structure to an LLC legal structure.Now you don't have to tell the IRS
(13:11):
you did anything. You keep thesame tax ID number because legal structure and
taxes have nothing to do with eachother. The IRS doesn't know whether you
have an LLC or a corporation.All they know is you have an entity
taxed under Subchapter S of the IRSCode, So they don't care. So
(13:35):
it's easy to make that change.Make the change and get this additional asset
protection, the charging order asset protectionthat a corporation cannot give you. You
can't get it now. The neatthing about an LLC is you get to
choose how it's going to be taxed. How are you going to have it
(13:56):
taxed. You're gonna have it taxedif you have real estate income, you're
getting rants. You're gonna have ittaxed as a partnership. That means you
need at least two people owning it, right, you gotta have partner,
So you're gonna have it taxed asa partnership. If you're selling goods and
services and legal services, I'm sellingdresses, I'm selling widgets on eBay,
(14:24):
whatever it is. If you're sellinggoods and services, you're gonna have it
taxed under Subchapter S of the IRSCode. So those are your two tax
options in my opinion. Yes,the LLC can be taxed as a disregarded
entity. It can use your SocialSecurity number and all of that stuff.
(14:46):
You can have it taxed under ChapterC of the IRS Code. And frankly,
if you have a business, particularlyreal estate, if you have a
business taxed under Chapter C, ifyou have a C corp, the answer
is no, and you can't justifyit. In ninety nine point five percent
(15:07):
of the cases, you can't justifya Chapter C entity. Your accountant's screwing
you, somebody's taking you to thecooiners. Guys, if you've got a
Chapter C entity, you're a littleradar. Antennas need to go up and
you need to say why do Ihave this? And you can't give me
(15:28):
a good justification. I'll almost guaranteeit. Wow, does that help?
Iida? Oh my, that wasa lot of great information. So if
people want to work with you,how do they do so? Well,
I don't take clients. I'm inthe business of educating people. If they
want, I'll give them a freak. It's a twenty page book called the
(15:54):
LLC Mini Course, and it overviewsall this stuff a little more detailed about
the LLC. That's free to themif they want it. So people get
that, just go to Legal Lees. It's it's a pun on my name.
It's legal L E G A Land then E E S. There's
aren't There aren't two l's in themiddle, just one L Legal Lees L
(16:17):
E G A L E E S. Dot Com forward slash ida. How
does that sound? And we'll justwe'll just send it to them. Uh
no, charge it. Well,we give it to them electronically, so
i'll have a cost either works workgood? Yeah, excellent, that'st excellent.
(16:37):
Yeah. I have a lot ofquestions and they're kind of rolling around,
Ruth. If you want to askthem, I'm willing to help you.
Okay, you're saying that all LLCshould have a partner, but you
can also do a sole proprietor LLLC. Yes, I said, I said,
if you're gonna have it taxed asa partnership. You've got to have
(17:00):
a partner. Okay. Now,if you want it taxed under subchapters,
you only need one guy. Okay. You can have an LLC tax is
what we call a disregarded entity.You called it a sole proprietorship. It's
just me. It's my Social Securitynumber, and the IRS doesn't know I've
(17:22):
got one of these babies. Theydon't care if I've got an LLC.
They just know that I'm making moneyand I'm filing under a Schedule C.
Or if it's real estate, it'sa Schedule E. That's all the I
R S knows. That's all Icare about. So I can have it
be a disregarded entity, sole proprietorship, I can have it be a partnership.
(17:45):
If there's more than one guy,our girl, and I can have
it taxed under subchapter S. OrI can even have it taxed under Chapter
C of the i RS Code.So the LLC, he's really flexible.
You get to choose how you wanta text thank you, And I think
(18:06):
many people do have single disregarded entityLLCs because they're starting their own business and
they want something. They don't knowwhat you just told us. Well,
I'm going to tell you something else. They want some kind of protection.
They know that making themselves a corporation, they get the broad idea that they're
vulnerable for everything. But the informationyou're giving us is getting down to brass
(18:30):
tax Yeah, well, the LLCgives them better asset protection. And I'm
going to tell you something else thatnobody else is going to tell you.
I've gone very deep into taxes overthe last fifteen twenty years. I'm a
US Federal Tax Court attorney. Andwhat I realized as I went along is
(18:52):
the IRS is actually your number oneasset protection threat. Guys, the IRS
has taken twenty thirty four fifty percentof everything you bring in the door.
Isn't that an asset protection threat?Yes, So I've studied the IRS,
and I actually have a lot offormer IRS agents actually working now in my
(19:15):
office, and they do do accountingor tax work for people not accounting.
But one of the things that mostpeople don't understand is we have eighty five
thousand IRS agents. This year they'readding an additional thirty thousand, and they're
(19:37):
doing good. They're gonna make itso at the end of the year we
won't have eighty five thousand, we'regonna have one hundred and fifteen thousand,
and they have stated that they're goingto get that up to one hundred and
sixty thousand. They're going to doublethe number of IRUs agents. They have
(19:59):
stayed that they want to take theaudit from less than one percent up to
ten percent. They want to getan extra trillion dollars out of audits.
So your chance of audit just wentthrough the roof. Guys, what people
don't understand is in order, anyoneof the hundred and fifteen thousand IRS agents
(20:26):
can audit at ten forty four witha Schedule C or Schedule E. That's
your sole proprietor, isn't it ruthLess than one half of one percent can
audit a partnership or a sub chapterS. The reason is you have to
(20:48):
have a degree in accounting. Howmany of these thirty thousand agents they're getting
off the street this week have adegree in accounting and you have to be
trained for three years at the IRSat the cost of over a million dollars
to the IRS. So you haveto have a degree in accounting and you've
(21:08):
got to be trained for three yearsto audit a partnership or a subass read
between the lines. M that isvery interesting. Wow, that's yeah,
yeah, that's very interesting. Sonow I'm need to go back, and
I think I MINDS is like ascheduled C have an LLLC, But it's
(21:33):
not. It's just me. I'mI know, I've never seen them use
a S form. Well, howare you making your money? Idah?
Are you selling your services or you'reselling goods services services? Okay? If
you're selling services, you want tobe taxed under Subchapter S. Okay.
(21:56):
And the reason is the law ofsubchapter says you can take let's say I
make one hundred thousand dollars, Ican take thirty thousand dollars as a salary.
The other seventy thousand dollars I cantake as a distribution. The money
I take as a distribution, Idon't have to pay the fifteen point three
(22:18):
percent employment soul security FIK A fewto all that crap. So I get
a fifteen point three percent bump immediatelyon the seventy thousand. If you are
a sole proprietor or a partner,you have to take all one hundred thousand
(22:38):
dollars and pay the employment tax onit. Can you see the difference.
Okay, so when I get mytax it's done. Even though on the
LC they neverge they have a reallythey never said anything. And by me
not being they don't help you don'tyou're right, Well, there's a reason
(23:03):
they don't help you, idah.And the reason is if the account takes
the numbers that you give them,plugs them into the computer and spits out
your taxes, there's zero liability inthat. As soon as they say it
to you know, you really oughtto change from a sole proprietorship to a
subchapter S entity. If something goeswrong, anything goes wrong, they're liable.
(23:30):
It won't take the liability in theaccountants have learned to keep their mouth
shut. Wow. So I havea question. So I'm an LLLC.
How do I take the S theco S song whatever it you called it.
(23:52):
This is so, well, you'regonna have to You're gonna have to
file for an EI N number.I have an EI N. Well,
you don't need any I N witha sole proprietorship that you didn't need.
So you're filing an extra piece thatyou don't need. But you've got an
(24:14):
EI N. So you're gonna haveto file the form with the IRS.
What is it two twenty five ortwenty twenty five. You're gonna have to
file a form with the IRS thatsays I want to be a subchapter S
entity. Then they will make youa subchapter S. You can change your
(24:36):
taxing structure, no questions, askwith the IRS every five years. Oh
okay, okay, so I needto do that for next year. That
would be good. In fact,you can do it now and it will
be retroactive for this year. Okay, and what's that? Let me just
(24:56):
make sure I write this down becauseI don't know the tax number. Just
a minute, let me see ifI can figure it out. Okay,
here I've got This is some greataffirmation. Yes, I hope people are
listening. Yes, because a lotof people have lcs and they just applied
(25:18):
and they don't have this in depth. It's a Form twenty five fifty three.
Form twenty five fifty three. Yeah. I actually have a whole set
of materials here that walk you throughhow to fill that out, how to
do everything associated with an LLC.It's called the LLC Wizard. You get
(25:41):
it on the internet. But Igo through and I talk to you for
over eight hours. It's all indexed. Talk to you for over eight hours
and give you all of the formselectronically, so you can set up your
own LLC in any state. Ihave instructions for each state, and you
can write your own operating agreement.It's really easy, guys, and I'll
(26:04):
be willing to bet you can doa better job than eighty five percent of
the lawyers in your town. Iwould say, so, could you give
us the number for that forming onemore time? Please? Fifty three?
So now I have another question foryou. You have your one LLC,
and let's say for me it wouldbe voice over. It's okay, So
(26:29):
I've got one LLC. If Iopen up another LLC for another business,
how does that? How will thatwork? Well, you're gonna set up
two LLC's. You gotta pay thestate fees for each one. Right,
You're going to be the member theowner of each one. And there again
(26:52):
we can go a lot deeper here. You shouldn't be the member you're living
revocable trust. Should be the memberthe owner because you don't want to have
to probate this LLC when you diethe family you want it to go directly
to the family. Okay, okay, so you're gonna have your living trust
to actually be the member. Butfor most people they are the member.
(27:17):
And depending upon how you want ittaxed, you just ignore things, use
your Social Security number, and it'sa sole proprietorship. You declare it as
a partnership and you file eight tensixty five form at the end of the
year. You go through the paperworkand you fill out the form. It's
a one page form for the iRS the twenty five fifty three and you
(27:41):
become a subchapter. S oh meif people want to do you know,
you then opened up a can ofworms, see it. I'm sorry it
didn't mean too honest. Now peopleare going to want to be coming at
you and talking to year and pickingyour brain from the world. Oh,
it's gonna be slim pickings. Ito So again, how do people get
(28:04):
the guy that you have. It'scalled the L l C Mini course.
They go to legal lees l EG A L E E S. There's
only one L in the middle,legal lees dot com forward slash Ida okay
ida, that's pretty easy. I'llgive you the link. Maybe you can
post it something. Yes, yes, make sure, I get it.
(28:26):
Row we have you want it backbecause hey, we can do this on
taxes. We can. I'll blowyour mind on taxes. Ida, Yeah,
people have people have no clue whattaxes are, no clue exactly,
you're absolutely yes. So that's adate. Oh we got a date.
(28:48):
Okay, yeah, we got adate because I remember definitely before the end
of the tax year comes, becausepeople need to have this information well ahead
of time so they I'm playing bettertax planning. Isn't a December fifteenth or
December thirty first item right or inApril fifteenth item? You have to think
(29:10):
all year long, every transaction youdo, what's the tax? Could I
structure this deal differently to give mea better tax outcome? Okay, Well,
we are definitely so happy that youjoined us today and I will be
sending you a link so that youcan reschedule like real soon. Thank you,
(29:33):
Thank you, look forward to seeingyou again soon. Yes, very
soon. All right, we'll seeyou soon unless you're lucky. All right,
thank you. Thank you for tuningin to Just Minding My Business Radio.
I'm your host, and Heyda Crowferand I'm your co host and repacking.
(29:55):
We hope you enjoy the show andappreciate you stopping by. Many lissos
to you and yours
Welcome to Just Minding My Business Radio, where we are moving at the speed
(00:05):
of God, learning what we didn'tknow we didn't know. I'm your host,
Iida Crawford, and I'm your cohost Rough Taskins. So grab a
pen and paper and get ready forinformation that you can use. Welcome to
Just Minding My Business Media LLC.Broaden the scope of exposure for your business
(00:29):
by going beyond the interview. Learnmore at www dot JMMB mediallc dot com
or email us at JMMB Radio atgmail dot com. When you write biographies,
whether it's about Ben Franklin or Einstein, who discovers something amazing, they
(00:50):
are human. Today we welcome AttorneyLee R. Phillips, who is a
counselor of the United States Supreme Court. He has three university degrees and has
held licenses in real estate, mortgagebrokering, securities, and life insurance,
as well as being a registered investmentadvisor. Lee is nationally recognized in the
(01:11):
fields of business structure, asset protection, financial map planning, and estate planning.
He is the founder of Legal LeesCorporation, a company specializing in solving
asset protection and tax problems for highnet worth individuals. At age twenty seven,
Lee spent five months in a universityhospital ICU and watch the legal system
(01:36):
take everything he and his young familyhad. He understands, therefore firsthand the
importance of asset protection and he wantsto help others avoid personal disasters. Welcome
Lee, How are you? Yesas well? How are you welcome?
Welcome. It's good to be herewith you. Yes, good to have
(01:57):
your Lee. Okay, let's jumpright into the period in your life where
you were in the hospital in theACU. Well, I was just graduated
from law school. I was actuallygoing to be a patent attorney. I
have a big science background, andI got sick. I was diagnosed with
(02:23):
cancer. It was testicular cancer.That's a closet cancer. Nobody talks about
it, and yet it's the leadingcauses cancer cause of death in males age
twenty to forty, So we needto talk about it. But that's beyond
this point. I was diagnosed andgiven a couple of weeks to live and
(02:45):
became the national guinea pig and spentfive months in intensive care. In another
three years and I didn't work.And basically, even though I was a
lawyer, the legal system took usto the cleaners. We lost everything.
My wife, my three children,and I would have been actually out on
the street had our parents not steppedin and helped us. So after I
(03:07):
got through being sick, One,you're unemployable, so nobody would ever hire
me again, which they never did. And two I looked at it and
said, man, we've lost everything. This isn't going to happen again.
So I started to study asset protectionand that works into business structuring and estate
(03:30):
planning and these types of things.But it's critical that you have a mechanism
that will protect what you build,big or small, and protect it when
something happens. And if I sayasset protection, you don't need jerk reaction
as a lawsuit. No, no, no, no, no. Fifty
six percent of all bankruptcies in theUnited States or a result of somebody getting
(03:53):
sick. So the question is,are you're going to lose your real estate
investments or you're gonna lose your littlebusiness when somebody in the family gets sick.
And the answer for me was yes, and the answer for you is
probably yes. The answer for metoday is no, I'm not going to
lose my business. I'm not goingto lose my real estate holdings. So
(04:14):
legally you can protect those things fromthe illness, the divorce, the lawsuit.
There are just lots of different thingsthat happen to people that threaten their
financial security. Is that what youwant to talk about then, Ida,
Yes, absolutely, because people needto be aware that you know, any
(04:35):
of these catastrophic events can happen toanybody, and how do how do we
protect ourselves? Well, you're goingto have to do a little legal juggling
in the in the beginning, butit's critical that you do it. A
man came to me in the earlyeighties and he wanted to set up a
(04:58):
direct marketing business, and by nineteenninety he got this marketing business, drect
marketing business up to about one hundredand fifty million dollars a year. He
was doing pretty good, and whenhe came to me, he said,
Lee, I want to make itso that if something happens my wife,
my kids, they're protected, theydon't lose everything. We can go on.
(05:24):
So I structured it. I usedsome simple legal techniques and made it
so that we took all the profitout of his business and moved it over
to his wife's business each year.Now his wife didn't have anything to do
with his business, and he didn'thave anything to do with her business,
but we'd move money over into herbusiness each year. Well, August two,
(05:49):
nineteen ninety, if I tell youwhat happened, you'll know where you
were the Gulf War started. Iremember I was actually driving from Boston to
Martha's vineyed doing business for this guy, and I listened to the war on
the radio. We'd never heard thewar, we'd never seen. CNN covered
(06:14):
the war wall to wall. TheUnited States had declared war. People are
afraid, and within forty eight hours, this man's business went from a six
hundred thousand miles an hour to zerofull stop. And there were so many
lawsuits. He held the post officetwo million dollars. He took down three
(06:36):
or four printing companies in the city. It was horrible. But he hadn't
done anything wrong. He did zerowrong. And there were so many lossits
that the Attorney general and the stateactually took over. That's a little weird.
And in the court, first thingthat happened was the wife's attorney stood
(07:00):
up and said, your honor,there's no allegation in this complaint that the
wife did anything wrong. She hadnothing to do with his business. And
the judge says, okay, boys, and turned to the Attorney General's group
and said well, and they cameback in about fifteen minutes and said,
no, we have no allegation againstthe wife. So the judge said,
(07:24):
fine, case dismissed with prejudice againstwife. Wife and her attorney stood up
and walked out of court, andthere was an audible in the court.
There goes the money. The lasttime I saw this couple was in their
penthouse on ConA Polly Beach on Maui, and they were in their mid fifties.
(07:46):
They never worked again. But hehad taken the time when he started
to say what happens if there's adisaster. He couldn't have foreseen the Gulf
War. He couldn't have foreseen whatit did to America's buying interests at that
time. And because it was directmarketing, he had so much money out
(08:09):
front. You have to push thisdirect market and you have to mail the
pieces, you have to do everythingup front, and he just he lost
everything, but we saved everything too, So you can do this, guys.
I'm going to cut to the Chase. What you're going to do today
is you're going to use a limitedliability company and LLC. You will not
(08:31):
use a corporation. The LLC givesyou twice as much asset protection as a
corporation. The corporation protects you fromwhat happens out in the company. The
LLC has the exact same corporate shieldor limited liability as a corporation legal structure,
(08:54):
except in addition to the corporate shield, the LLC has another asset protection
function which protects the business assets fromwhat happens to the owner. If you
have a corporation and it's my corporationand I get sick, or I declare
(09:15):
personal bankruptcy, I hit a kidin the crosswalk on the way to church,
I get divorced, whatever it is, they attack me. When they
attack me, they get the stockin my corporation. They now own the
corporation, lock, stock and barrel. In an LLC, they can't come
in and get the stock the membershipinterests as we call them. All they
(09:41):
can do is get an economic leanagainst the LLC, which they say charges
the debt that I owe against mycompany the LLC. But they can't tell
me how to manage it. Theycan't come in and sell it. They
can't do anything except if the LLCdeclares a profit, then they get it.
(10:07):
My creditor gets it. I don'tget it anymore. So the LLC
protects the company and the assets withinthe company from what happens to the individual
owners. That's a big difference,guys, that's huge. In fact,
in the twenty eight ten real estateturned down, I saw people that lose
(10:33):
thirty pieces of property. This onewould go bad, there would be a
deficiency. They give it back tothe bank. The bank could sell it,
there'd be a deficiency. So theycome to the owner. Now wait
a minute, this is in anLLC. Why can they come to the
owner because the corporate shield should protectthe owner from what happens in the LLC.
(10:56):
That's true, but I will guaranteeyou personally signed the mortgage, so
they just come back to you.So they come to you. If you
own this second house, they'll cometo the second house and get it.
They'll come to the third house andget it. They'll come to the fourth
(11:18):
house and get it. If thesecond house is in an LLC, fine,
they come to you. They geta judgment against you you declare personal
bankruptcy, they still can't get thehouse that's in this other LLC. It's
protected from what happens to the owners. We call it charging order protection,
(11:41):
and it is a very powerful conceptthat frankly, most attorneys just jump over.
They don't understand, they don't knowabout it, and they don't care
because frankly, attorneys make their moneycleaning up the mess. But I didn't
want them. I wanted to knowhow to do this to protect myself and
(12:05):
people I've worked with over the years. And I had to figure it out
on myself. I didn't by myself. I didn't work for firm, and
the lawyers work for firms and theytell them what to do. I had
to figure it out. And it'svery difficult to actually understand why is that
piece in that document it says this? Why does it say that? And
(12:28):
most lawyers can't tell you why.Very few can tell you why. And
so I studied it and studied itand studied it and finally figured it out.
It was my scientific background. Ihad to experiment with it, but
I figured out. And I'm goingto tell you, you want to use
(12:48):
an LLC, you do not wanta corporation. If you have a corporation,
you can change it. The statehas forms. Your state has forbs
that will allow you to change thell or the corporation, the corporate legal
structure to an LLC legal structure.Now you don't have to tell the IRS
(13:11):
you did anything. You keep thesame tax ID number because legal structure and
taxes have nothing to do with eachother. The IRS doesn't know whether you
have an LLC or a corporation.All they know is you have an entity
taxed under Subchapter S of the IRSCode, So they don't care. So
(13:35):
it's easy to make that change.Make the change and get this additional asset
protection, the charging order asset protectionthat a corporation cannot give you. You
can't get it now. The neatthing about an LLC is you get to
choose how it's going to be taxed. How are you going to have it
(13:56):
taxed. You're gonna have it taxedif you have real estate income, you're
getting rants. You're gonna have ittaxed as a partnership. That means you
need at least two people owning it, right, you gotta have partner,
So you're gonna have it taxed asa partnership. If you're selling goods and
services and legal services, I'm sellingdresses, I'm selling widgets on eBay,
(14:24):
whatever it is. If you're sellinggoods and services, you're gonna have it
taxed under Subchapter S of the IRSCode. So those are your two tax
options in my opinion. Yes,the LLC can be taxed as a disregarded
entity. It can use your SocialSecurity number and all of that stuff.
(14:46):
You can have it taxed under ChapterC of the IRS Code. And frankly,
if you have a business, particularlyreal estate, if you have a
business taxed under Chapter C, ifyou have a C corp, the answer
is no, and you can't justifyit. In ninety nine point five percent
(15:07):
of the cases, you can't justifya Chapter C entity. Your accountant's screwing
you, somebody's taking you to thecooiners. Guys, if you've got a
Chapter C entity, you're a littleradar. Antennas need to go up and
you need to say why do Ihave this? And you can't give me
(15:28):
a good justification. I'll almost guaranteeit. Wow, does that help?
Iida? Oh my, that wasa lot of great information. So if
people want to work with you,how do they do so? Well,
I don't take clients. I'm inthe business of educating people. If they
want, I'll give them a freak. It's a twenty page book called the
(15:54):
LLC Mini Course, and it overviewsall this stuff a little more detailed about
the LLC. That's free to themif they want it. So people get
that, just go to Legal Lees. It's it's a pun on my name.
It's legal L E G A Land then E E S. There's
aren't There aren't two l's in themiddle, just one L Legal Lees L
(16:17):
E G A L E E S. Dot Com forward slash ida. How
does that sound? And we'll justwe'll just send it to them. Uh
no, charge it. Well,we give it to them electronically, so
i'll have a cost either works workgood? Yeah, excellent, that'st excellent.
(16:37):
Yeah. I have a lot ofquestions and they're kind of rolling around,
Ruth. If you want to askthem, I'm willing to help you.
Okay, you're saying that all LLCshould have a partner, but you
can also do a sole proprietor LLLC. Yes, I said, I said,
if you're gonna have it taxed asa partnership. You've got to have
(17:00):
a partner. Okay. Now,if you want it taxed under subchapters,
you only need one guy. Okay. You can have an LLC tax is
what we call a disregarded entity.You called it a sole proprietorship. It's
just me. It's my Social Securitynumber, and the IRS doesn't know I've
(17:22):
got one of these babies. Theydon't care if I've got an LLC.
They just know that I'm making moneyand I'm filing under a Schedule C.
Or if it's real estate, it'sa Schedule E. That's all the I
R S knows. That's all Icare about. So I can have it
be a disregarded entity, sole proprietorship, I can have it be a partnership.
(17:45):
If there's more than one guy,our girl, and I can have
it taxed under subchapter S. OrI can even have it taxed under Chapter
C of the i RS Code.So the LLC, he's really flexible.
You get to choose how you wanta text thank you, And I think
(18:06):
many people do have single disregarded entityLLCs because they're starting their own business and
they want something. They don't knowwhat you just told us. Well,
I'm going to tell you something else. They want some kind of protection.
They know that making themselves a corporation, they get the broad idea that they're
vulnerable for everything. But the informationyou're giving us is getting down to brass
(18:30):
tax Yeah, well, the LLCgives them better asset protection. And I'm
going to tell you something else thatnobody else is going to tell you.
I've gone very deep into taxes overthe last fifteen twenty years. I'm a
US Federal Tax Court attorney. Andwhat I realized as I went along is
(18:52):
the IRS is actually your number oneasset protection threat. Guys, the IRS
has taken twenty thirty four fifty percentof everything you bring in the door.
Isn't that an asset protection threat?Yes, So I've studied the IRS,
and I actually have a lot offormer IRS agents actually working now in my
(19:15):
office, and they do do accountingor tax work for people not accounting.
But one of the things that mostpeople don't understand is we have eighty five
thousand IRS agents. This year they'readding an additional thirty thousand, and they're
(19:37):
doing good. They're gonna make itso at the end of the year we
won't have eighty five thousand, we'regonna have one hundred and fifteen thousand,
and they have stated that they're goingto get that up to one hundred and
sixty thousand. They're going to doublethe number of IRUs agents. They have
(19:59):
stayed that they want to take theaudit from less than one percent up to
ten percent. They want to getan extra trillion dollars out of audits.
So your chance of audit just wentthrough the roof. Guys, what people
don't understand is in order, anyoneof the hundred and fifteen thousand IRS agents
(20:26):
can audit at ten forty four witha Schedule C or Schedule E. That's
your sole proprietor, isn't it ruthLess than one half of one percent can
audit a partnership or a sub chapterS. The reason is you have to
(20:48):
have a degree in accounting. Howmany of these thirty thousand agents they're getting
off the street this week have adegree in accounting and you have to be
trained for three years at the IRSat the cost of over a million dollars
to the IRS. So you haveto have a degree in accounting and you've
(21:08):
got to be trained for three yearsto audit a partnership or a subass read
between the lines. M that isvery interesting. Wow, that's yeah,
yeah, that's very interesting. Sonow I'm need to go back, and
I think I MINDS is like ascheduled C have an LLLC, But it's
(21:33):
not. It's just me. I'mI know, I've never seen them use
a S form. Well, howare you making your money? Idah?
Are you selling your services or you'reselling goods services services? Okay? If
you're selling services, you want tobe taxed under Subchapter S. Okay.
(21:56):
And the reason is the law ofsubchapter says you can take let's say I
make one hundred thousand dollars, Ican take thirty thousand dollars as a salary.
The other seventy thousand dollars I cantake as a distribution. The money
I take as a distribution, Idon't have to pay the fifteen point three
(22:18):
percent employment soul security FIK A fewto all that crap. So I get
a fifteen point three percent bump immediatelyon the seventy thousand. If you are
a sole proprietor or a partner,you have to take all one hundred thousand
(22:38):
dollars and pay the employment tax onit. Can you see the difference.
Okay, so when I get mytax it's done. Even though on the
LC they neverge they have a reallythey never said anything. And by me
not being they don't help you don'tyou're right, Well, there's a reason
(23:03):
they don't help you, idah.And the reason is if the account takes
the numbers that you give them,plugs them into the computer and spits out
your taxes, there's zero liability inthat. As soon as they say it
to you know, you really oughtto change from a sole proprietorship to a
subchapter S entity. If something goeswrong, anything goes wrong, they're liable.
(23:30):
It won't take the liability in theaccountants have learned to keep their mouth
shut. Wow. So I havea question. So I'm an LLLC.
How do I take the S theco S song whatever it you called it.
(23:52):
This is so, well, you'regonna have to You're gonna have to
file for an EI N number.I have an EI N. Well,
you don't need any I N witha sole proprietorship that you didn't need.
So you're filing an extra piece thatyou don't need. But you've got an
(24:14):
EI N. So you're gonna haveto file the form with the IRS.
What is it two twenty five ortwenty twenty five. You're gonna have to
file a form with the IRS thatsays I want to be a subchapter S
entity. Then they will make youa subchapter S. You can change your
(24:36):
taxing structure, no questions, askwith the IRS every five years. Oh
okay, okay, so I needto do that for next year. That
would be good. In fact,you can do it now and it will
be retroactive for this year. Okay, and what's that? Let me just
(24:56):
make sure I write this down becauseI don't know the tax number. Just
a minute, let me see ifI can figure it out. Okay,
here I've got This is some greataffirmation. Yes, I hope people are
listening. Yes, because a lotof people have lcs and they just applied
(25:18):
and they don't have this in depth. It's a Form twenty five fifty three.
Form twenty five fifty three. Yeah. I actually have a whole set
of materials here that walk you throughhow to fill that out, how to
do everything associated with an LLC.It's called the LLC Wizard. You get
(25:41):
it on the internet. But Igo through and I talk to you for
over eight hours. It's all indexed. Talk to you for over eight hours
and give you all of the formselectronically, so you can set up your
own LLC in any state. Ihave instructions for each state, and you
can write your own operating agreement.It's really easy, guys, and I'll
(26:04):
be willing to bet you can doa better job than eighty five percent of
the lawyers in your town. Iwould say, so, could you give
us the number for that forming onemore time? Please? Fifty three?
So now I have another question foryou. You have your one LLC,
and let's say for me it wouldbe voice over. It's okay, So
(26:29):
I've got one LLC. If Iopen up another LLC for another business,
how does that? How will thatwork? Well, you're gonna set up
two LLC's. You gotta pay thestate fees for each one. Right,
You're going to be the member theowner of each one. And there again
(26:52):
we can go a lot deeper here. You shouldn't be the member you're living
revocable trust. Should be the memberthe owner because you don't want to have
to probate this LLC when you diethe family you want it to go directly
to the family. Okay, okay, so you're gonna have your living trust
to actually be the member. Butfor most people they are the member.
(27:17):
And depending upon how you want ittaxed, you just ignore things, use
your Social Security number, and it'sa sole proprietorship. You declare it as
a partnership and you file eight tensixty five form at the end of the
year. You go through the paperworkand you fill out the form. It's
a one page form for the iRS the twenty five fifty three and you
(27:41):
become a subchapter. S oh meif people want to do you know,
you then opened up a can ofworms, see it. I'm sorry it
didn't mean too honest. Now peopleare going to want to be coming at
you and talking to year and pickingyour brain from the world. Oh,
it's gonna be slim pickings. Ito So again, how do people get
(28:04):
the guy that you have. It'scalled the L l C Mini course.
They go to legal lees l EG A L E E S. There's
only one L in the middle,legal lees dot com forward slash Ida okay
ida, that's pretty easy. I'llgive you the link. Maybe you can
post it something. Yes, yes, make sure, I get it.
(28:26):
Row we have you want it backbecause hey, we can do this on
taxes. We can. I'll blowyour mind on taxes. Ida, Yeah,
people have people have no clue whattaxes are, no clue exactly,
you're absolutely yes. So that's adate. Oh we got a date.
(28:48):
Okay, yeah, we got adate because I remember definitely before the end
of the tax year comes, becausepeople need to have this information well ahead
of time so they I'm playing bettertax planning. Isn't a December fifteenth or
December thirty first item right or inApril fifteenth item? You have to think
(29:10):
all year long, every transaction youdo, what's the tax? Could I
structure this deal differently to give mea better tax outcome? Okay, Well,
we are definitely so happy that youjoined us today and I will be
sending you a link so that youcan reschedule like real soon. Thank you,
(29:33):
Thank you, look forward to seeingyou again soon. Yes, very
soon. All right, we'll seeyou soon unless you're lucky. All right,
thank you. Thank you for tuningin to Just Minding My Business Radio.
I'm your host, and Heyda Crowferand I'm your co host and repacking.
(29:55):
We hope you enjoy the show andappreciate you stopping by. Many lissos
to you and yours
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