Legal Question in Business Law in California

Re: LLC vs. personal tax liab. with IRS

This totally depends on the agreement you have with the IRS. Does the agreement address what happens in the event that you obtain a large sum of cash? Or does it simply require monthly payments?

Re: LLC vs. personal tax liab. with IRS

I agree, it depends upon what your agreement says, and perhaps to a lesser extent what representations you made to the IRS to induce them to make the instalment agreement. If you didn't falsely plead inability to make larger payments, the IRS would (it appears) have no reason to try to abrogate their agreement to take instalments.

Transforming a proprietorship into an LLC, especially one with but a single member, is probably not going to do you any good; if you were under an obligation to pay the cash to the IRS, they will find a legal way to get around the LLC (by calling it a fraudulent transfer, for example), and if you weren't, the LLC is unnecessary at least for that purpose (but maybe it should be an LLC or Inc. for other reaasons).

I persoanlly would avoid anything that makes the IRS uneasy about your intent or ability to make all the payments, on time. Forming an LLC or Inc. involves it getting a taxpayer ID number, and that in turn requires the founder to reveal his SS# on an application. Who knows whether or not this causes a red light to illuminate on some control panel at the IRS?