Case summary: A proposal for the repair of a damaged bridge in city P was made. A design was prepared by an LLC named DM, in collaboration with a local sculptor namely S, which was selected by the city. Both DM and person S agreed to work together and divided their assignments, payments, and profits. They successfully completed the project.
To find: The imposition of tax on company DM as a
Explanation of Solution
A limited liability company(LLC) would be liable to pay tax as a partnership firm unless it itself declares to be taxed as a corporation. Any LLC which consists of at least two members have the option to choose between a corporation or a partnership
In this case, both parties have not declared to be taxed as a corporation. Therefore, they will be taxed as a partnership. In a partnership agreement, the profits are transferred through the partners or members who are laible to pay taxes on the profit generated.
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