[WSBAPT] Excise tax question

[J Richard McEntee, Jr.]

Hello 

A prospective client is a member with two others in an LLC. Each owns 1/3 of the member interests. The LLC owns a piece of real property that was financed with a hard money lender. The parties want to refinance the property with a conventional loan. The prospective client is the only creditworthy member of the LLC. As such, the new lender is asking that the property be transferred to the PC’s name only. In this situation, it would seem that a transfer to one member of the LLC with a corresponding assumption of debt will be considered payment to the other two members thus subjecting the transaction to excise tax as to the 2/3 debt forgiven. Am I correct? 

Now assuming, after the new loan, PC transfers the property back to the LLC, and the property is then/still subject to the deed of trust related to the conventional debt. Is excise tax due again? Is there a way to avoid excise tax on the round trip from LLC to individual, then back to the LLC?

NOTE: apparently the new lender is on board with the deed back to the LLC.

All input is appreciated.

Thank you 

Rich


RICH McENTEE
McENTEE LAW OFFICE
3800 Bridgeport Way W, Ste A411
University Place, WA 98466
253.227.9894(m)
jrmcentee at gmail.com       

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