Legal Advice

I arranged for a company owned by one person to buy part of a company I worked for in 2000. As part of that arrangement we made 3 agreements. 1. And Employment Agreement for wages, bonus, etc 2. A Stock Purchase Agreement, where I purchased 20% of the shares 3. An agreement to form an LLC to invest in the stock market, I was to put in 10%, the company 90%. In the agreement it refers to me as "executive" of the company, but also states this stock investment is 'mutually beneficial' In 2015 I brought in a new person to buy the the company I ran. We created a new employment agreement that stated I would get 100% ownership of shares in the LLC for any reason when I was terminated (I quit, or the company fired me). The EA also set me up with a stock option. The EA stated that at the end of 2016 the company would forfeit its shares. It's now many years later and I'm going to terminate my employment at the end of 2026. Perhaps sooner. The company is saying it must file a W2 to treat their forfeiture of shares of the LLC as employment income to me, similar to perhaps an executed stock option or a severance payment to a terminated employee. The problem is, this LLC was not formed as employment compensation. Perhaps a part of it, but most is not. Why? 1. In the original Security Agreement for the LLC it states its for the mutual benefit of both parties; I would forfeit my shares if I quit, and the company forfeits it shares if they fire me. This is not employment compensation, which only goes one way. 2. The LLC was to greatly increase its value. The owner felt I was a stock market expert (which is true), and that I'd increase the value many times over. He wanted a way to know that if I left, he got all that money. He viewed it as a way to get my stock advice for free as protection against my leaving the company. This is not compensation for me, he viewed it as compensation for him. 3. At the same time I was co-owner with 20% of the shares. This was not just an employer/employee relationship. It was a business partnership. He wanted to make sure he was compensated if I quit, he was highly dependent on me. The LLC was set to close on 2007, with both parties taking back their shares. We didn't close it, he and I had a verbal agreement to just keep it running. Along the way I sold back my 20% shares to him. In 2015 we sold to another company. That new company and I made a new EA, which said that LLC termination date would be extended. It got re-extended several times. At one point along the way, we agreed that he would offer me a stock option. But if I exercised the stock option, I would agree to give up LLC shares. This is where we began to co-mingle agreements. If I were to leave the company my stock option would go away and the company would forfeit LLC shares. My interpretation is that the LLC never was an employment agreement or compensation for employment. It was a deal between me and the guy that bought the company in 2020. But as time went on, it just sat there and we had to figure out a way to end it. So my new company owner and I agreed it just ends when I leave the company. This connection is why the company feels it has to withhold employee taxes for the W2. They have gotten legal advice, and their attorney see's merit in my argument, but they don't want to just forfeit shares in the LLC. They want me to get an attorney to draft a letter that states there is reasonable cause for the LLC to not be treated as employment compensation. Instead, treat it for what it is; a business deal I made 26 years ago with our original business owner. Everything after that is moot, They have agreed that we can add an addendum to the LLC to state it is not compensation, and that it was a business deal. And that the various documents are just fuzzy (which is true). but they also have been told that the IRS may disregard that, so there is some element of risk. Not much. What I'm seeking is someone that can take the 4-5 agreements that have been written over the years, and write a letter opinion that states there is a reasonable case this is a business deal, that I just happened to also be an employee. That maybe some part can be attributed to being an employee, but not the majority. Therefore, let me get their shares, and when I cash out the LLC I have to show all the capital gains, since that is the time I realize the income.