[WSBAPT] estate taxation of LLC interests

[John J. Sullivan]

Philip:

You have wandered into the thicket of conflicts of laws. I haven’t researched this in our respective states’ caselaw, but here’s a moldy old law review article indicating that in your hypothetical double taxation is a distinct possibility. 

https://kb.osu.edu/dspace/bitstream/handle/1811/68428/OSLJ_V24N2_0270.pdf


So maybe have the OR client convert the WA real property inside the LLC to an Airbnb? 😏

John Sullivan

Sent from my iPad

> On Mar 15, 2018, at 4:39 PM, Eric Nelsen <Eric at sayrelawoffices.com> wrote:
> 
> Yikes--nice first post! I have no wisdom to offer but am looking forward to other responses.
>  
> Sincerely,
>  
> Eric
>  
> Eric C. Nelsen
> SAYRE LAW OFFICES, PLLC
> 1417 31st Ave South
> Seattle WA  98144-3909
> phone 206-625-0092
> fax 206-625-9040
>  
> From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Philip N. Jones
> Sent: Thursday, March 15, 2018 4:26 PM
> To: wsbapt at lists.wsbarppt.com
> Subject: [WSBAPT] estate taxation of LLC interests
>  
> I have been an Oregon-resident member of the WSBA for decades (I practice estate planning in Portland), and a member of this section for decades, but I have only now joined the estate/probate listserv.  I look forward to the future discussions.
> So here is my first post.  This is a hypothetical; I do not really have this client.
> Ralph lives in Washington.  He owns a vacation house in Bend, Oregon.  He puts the house in a single-member LLC.
> Ralph promptly and expeditiously dies.
> The Washington Department of Revenue states on their website and in their instructions to Addendum #4 of the Washington estate tax return that real estate in a non-true-business-purpose LLC will be taxed at its physical real estate location, which is Oregon.  So Washington does not include the vacation home in the Washington numerator of the fraction.
> Oregon, on the other hand, in its regulations, honors LLCs regardless of business purpose, or lack thereof.  LLCs are intangible, Oregon says.  And Oregon does not tax intangibles of nonresidents.
> So Ralph pays no Oregon or Washington estate tax on the vacation house.  Zero.  Zip.  Nada.
> Or am I missing something here?
> That’s the good news.  Now let’s reverse the situation.  George lives in Oregon and puts his Wenatchee vacation house in an LLC and then dies.  Washington will disregard the LLC and tax the Washington real estate.  Oregon will honor the LLC as an intangible and tax it to its resident decedent.
> So it gets taxed in both states.  Which makes George unhappy.  Even though he is dead.
> Or am I missing something here?
> The mind reels.
> Thanks,
> Phil Jones
>  
> Philip N. Jones |Duffy Kekel LLP
> 111 SW 5th Ave, Suite 1500, Portland OR 97204
> (503) 226-1371 (main)| (503) 226-3574 (fax)
> pjones at duffykekel.com
>  
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