[WSBAPT] LLCs and the Washington estate tax

[David Moe]

I had a Washington Estate Tax question about the "True Business Purpose" issue relating the WA estate tax and out-of-state multi-unit rental property held in LL.  I browsed to the Estate Tax Division at DOR.WA.GOV, and found the online "Ask a Quick Question Online Form."  Without identifying the property or client, I posed the question.  Attached find a copy of my question and answer/response given.  Within one or two business days I received a call from DOR Estate Tax staff.  I was told the matter would be reviewed and I would receive a further reply.  Attached find a copy of the email exchange.
Dave Moe
Maple Valley, WA


David Moe Attorney, P.S.
Telephone:  425-432-1277
Fax:  425-432-1280
Address:
22128 SE 237th
Maple Valley, WA 98038

Email:  davidmoe at maplevalleylaw.com<mailto:davidmoe at maplevalleylaw.com>
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From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Philip N. Jones
Sent: Wednesday, January 02, 2019 4:13 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] LLCs and the Washington estate tax

I realize that many practitioners question the validity of the Washington Department of Revenue "rule," as stated in Addendum #4 to the Washington estate tax return, that an LLC will be disregarded unless the LLC has a "true business purpose."  But my question this time is whether anyone has any idea what a true business purpose really is.
Consider one end of the spectrum:  A single-member LLC that owns a vacation home that is used by no one other than the single member.  Very low risk, and thus perhaps little business need to hold it in an LLC.
Consider the middle of the spectrum:  A multi-member (all of the same family) LLC that owns a vacation home that is regularly rented out to the public, with the potential liability issues that that entails.
Consider the opposite end of the spectrum:  A multi-member (all of the same family) LLC that owns real estate that is rented out to a Taco Bell operator, whose customers regularly slip and fall on discarded tacos and spilled Cokes.
Does anyone have any experience with the Department of Revenue that might indicate what the Department believes is a true business purpose?  (I am assuming this question has never been litigated against the Department.)
Thanks, and happy new year,
Phil Jones
Portland, OR

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<mailto:pjones at duffykekel.com>

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