I would like the tax benefits of the entity and want the business to run professionally and legally.

@Justin Holley it all depends and there is a lot of flexibility.Our PMC is able to pay insurance & taxes for owners as well as utilitieis on vacant & MF properties.The only thing we shy away from is mortgage payments - too much potential liability if we pay late due to our error or owner portfolio doesn't have needed funds.Pretty much anything specifically related to a property should probably be paid via the Property LLC for easier accounting/tracking.

At the end of the day, you need to do your own due diligence.  

Property taxes and insurance. 

Tennessee doesn’t have personal income tax but if we create an LLC we would have to pay state income tax.

Proper due diligence is what often separates the aspiring real estate investors who crash and burn on their first deal, and those who build a successful portfolio.

"due the LLC arrangement the seller finance component is not technically considered a second lien on the property."

I cannot find the owner as the address tax records are in an llc with no contact info and the office address on the data doesn’t exists.  

b) How do the taxes work? 

If the tenant doesn't take care of their issues than you become responsible.  9 out of 10 times you become responsible.I always conducted my own inspections well ahead of any section 8 inspections to get ahead of the game and fix any issues that may arise due to section 8 inspections.