Just a quick primer on LLCs and corporations. LLCs and corporations are “artificial persons” in the eyes of the law. They are creatures of statute, created and existing under the laws of a particular state. A corporation incorporated in Maryland does not exist in Pennsylvania unless it qualifies to do business there and submits itself to the jurisdiction of that state. But its existence in Pennsylvania is tied to its existence in its state of formation.
If the state of formation revokes its corporate charter for failure to pay taxes or to make required periodic filings, then its existence in other states where it qualified to do business would cease as well.
In this case, the LLCs are forfeited because no tax returns were filed (and presumably no taxes were paid.) These taxes remain due and owing. They do not just disappear. If the entities continue to do business, the veil of limited liability is lost and the operator of the business does so as a sole proprietor (subject to being taxed as such). I wonder if Mr. Frost continues to file his tax returns as an LLC? If he takes business deductions that he could not take as an individual?
Quick tax lesson on LLCs... When you form an LLC you must elect to be taxed as a corporation or as a partnership. If you are a sole member LLC, you can elect to be taxed as a disregarded entity, which means that all the business income goes on your Schedule C and you are taxed like a sole proprietorship. Members of LLCs do not take much in salary, but rather take their money out in distributions or dividendeds. Why? Because salary is subject to payroll taxes (can you say FICA?) and dividends are not. Salary is also taxed as ordinary income where distributions may be taxed at the lower dividend or capital gain rates.
Mr. Frost may have some serious tax issues as a result of increased scrutiny of his businesses. (Furthermore, if there are taxes owed by the business entity, Mr. Frost might be personally liabile for these taxes.)
Good points, all, and I would add "whom does he work for, who pays him, and whom does he claiim is his employer when filling out these applications for government asssistance"?
Thanks - that was an excellent summary.