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<DIV dir=ltr>
<DIV style="FONT-SIZE: 14pt; FONT-FAMILY: 'Calibri'; COLOR: #000000">
<DIV><FONT size=4>I have an estate with an LLC with A and B units. Decedent
owned about 25%. All the members have the same % of A and B units.
There is no fixed rate dividend. There has been no gifting. Should we
show/report the value as 0% for A units and all value in the B
units?</FONT></DIV>
<DIV
style='FONT-SIZE: small; TEXT-DECORATION: none; FONT-FAMILY: "Calibri"; FONT-WEIGHT: normal; COLOR: #000000; FONT-STYLE: normal; DISPLAY: inline'>
<DIV style="FONT: 10pt tahoma">
<DIV> </DIV>
<DIV style="BACKGROUND: #f5f5f5">
<DIV style="font-color: black"><B>From:</B> <A
title=D.Sweeney@smithzuccarini.com
href="mailto:D.Sweeney@smithzuccarini.com">David Sweeney</A> </DIV>
<DIV><B>Sent:</B> Saturday, February 04, 2017 2:53 PM</DIV>
<DIV><B>To:</B> <A title=wsbapt@lists.wsbarppt.com
href="mailto:wsbapt@lists.wsbarppt.com">WSBA Probate & Trust Listserv</A>
</DIV>
<DIV><B>Subject:</B> Re: [WSBAPT] Gifting of LLC Interest and 754
Election</DIV></DIV></DIV>
<DIV> </DIV></DIV>
<DIV
style='FONT-SIZE: small; TEXT-DECORATION: none; FONT-FAMILY: "Calibri"; FONT-WEIGHT: normal; COLOR: #000000; FONT-STYLE: normal; DISPLAY: inline'>
<DIV class=WordSection1>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif; COLOR: #1f497d'>Unless
the Class A units have a dividend determined at a fixed rate, under Sec. 2701,
would the value of the Class A units be determined to be zero, so that all of
the value was transferred with the gifts of the Class B units? This
would just go to the value to be reported on the gift tax
returns.<o:p></o:p></SPAN></P>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif; COLOR: #1f497d'><o:p></o:p></SPAN> </P>
<DIV>
<P class=MsoNormal
style="mso-margin-top-alt: auto; mso-margin-bottom-alt: auto"><SPAN
style="COLOR: #1f497d">David B. Sweeney <BR>Smith & Zuccarini, P.S.
<BR>2155-112th Avenue NE <BR>Bellevue, Washington 98004
<o:p></o:p></SPAN></P></DIV>
<P class=MsoNormal><SPAN style="COLOR: #1f497d">Telephone: 425-453-4455
<BR>Direct Line: 425-990-1586 <BR>Facsimile: 425-453-4454 <BR><A
title=mailto:D.sweeney@smithzuccarini.com
href="blocked::mailto:D.sweeney@smithzuccarini.com"><SPAN
style="COLOR: black">E-mail:D.sweeney@smithzuccarini.com</SPAN></A> <BR><A
title=http://www.smithzuccarini.com/
href="http://www.smithzuccarini.com/">www.smithzuccarini.com</A> </SPAN><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif; COLOR: #1f497d'><o:p></o:p></SPAN></P>
<DIV>
<DIV
style="BORDER-TOP: #e1e1e1 1pt solid; BORDER-RIGHT: medium none; BORDER-BOTTOM: medium none; PADDING-BOTTOM: 0in; PADDING-TOP: 3pt; PADDING-LEFT: 0in; BORDER-LEFT: medium none; PADDING-RIGHT: 0in">
<P class=MsoNormal><B><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'>From:</SPAN></B><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'>
wsbapt-bounces@lists.wsbarppt.com [mailto:wsbapt-bounces@lists.wsbarppt.com]
<B>On Behalf Of </B>John J. Sullivan<BR><B>Sent:</B> Saturday, February 04, 2017
2:04 PM<BR><B>To:</B> WSBA Probate & Trust Listserv
<wsbapt@lists.wsbarppt.com><BR><B>Subject:</B> Re: [WSBAPT] Gifting of LLC
Interest and 754 Election<o:p></o:p></SPAN></P></DIV></DIV>
<P class=MsoNormal><o:p></o:p> </P>
<DIV>
<P class=MsoNormal>It wouldn't. <BR><BR>Sent from my iPhone<o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal style="MARGIN-BOTTOM: 12pt"><BR>On Feb 4, 2017, at 12:13 PM,
Jennifer Sohn <<A
href="mailto:jennifer@sohn-law.com">jennifer@sohn-law.com</A>>
wrote:<o:p></o:p></P></DIV>
<BLOCKQUOTE style="MARGIN-BOTTOM: 5pt; MARGIN-TOP: 5pt">
<DIV>
<DIV>
<P class=MsoNormal>Thanks for the input... I don't think the management
structure would pose a problem in this case. But, I am not understanding the
754 issue. In a gift, the basis is carried over, and 754 is an election to
step-up basis which does not apply here. I am not sure how the 754 would
invalidate the gift?<o:p></o:p></P></DIV>
<DIV id=AppleMailSignature>
<P class=MsoNormal><BR><BR>Best regards,<o:p></o:p></P>
<DIV>
<P class=MsoNormal><o:p></o:p> </P></DIV>
<DIV>
<P class=MsoNormal>Jennifer Sohn<o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal>206.617.7874<o:p></o:p></P></DIV></DIV>
<DIV>
<P class=MsoNormal style="MARGIN-BOTTOM: 12pt"><BR>On Feb 4, 2017, at 10:13
AM, John J. Sullivan, Esq. <<A
href="mailto:sullaw@comcast.net">sullaw@comcast.net</A>>
wrote:<o:p></o:p></P></DIV>
<BLOCKQUOTE style="MARGIN-BOTTOM: 5pt; MARGIN-TOP: 5pt">
<DIV>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'>What the CPA may
be thinking of is that the management structure may render the gifts not of
“present interests” denying the donor annual exclusion. <BR><BR>I would be
very reluctant to consider rescinding the gifts retroactively.
</SPAN><o:p></o:p></P>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'> </SPAN><o:p></o:p></P>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'>There is a Sec.
754 issue, but I’m not convinced it applies here. <BR><BR><A
href="http://www.thetaxadviser.com/issues/2008/jun/handlinggiftsandbequestsofllcinterests.html">http://www.thetaxadviser.com/issues/2008/jun/handlinggiftsandbequestsofllcinterests.html</A></SPAN><o:p></o:p></P>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'> </SPAN><o:p></o:p></P>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'>John J.
Sullivan</SPAN><o:p></o:p></P>
<P class=MsoNormal><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'> </SPAN><o:p></o:p></P>
<P class=MsoNormal><B><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'>From:</SPAN></B><SPAN
style='FONT-SIZE: 11pt; FONT-FAMILY: "Calibri",sans-serif'> <A
href="mailto:wsbapt-bounces@lists.wsbarppt.com">wsbapt-bounces@lists.wsbarppt.com</A>
[<A
href="mailto:wsbapt-bounces@lists.wsbarppt.com">mailto:wsbapt-bounces@lists.wsbarppt.com</A>]
<B>On Behalf Of </B>Jennifer Sohn<BR><B>Sent:</B> Friday, February 3, 2017
11:24 PM<BR><B>To:</B> WSBA Probate & Trust Listserv <<A
href="mailto:wsbapt@lists.wsbarppt.com">wsbapt@lists.wsbarppt.com</A>><BR><B>Subject:</B>
[WSBAPT] Gifting of LLC Interest and 754 Election</SPAN><o:p></o:p></P>
<P class=MsoNormal> <o:p></o:p></P>
<DIV>
<DIV>
<P class=MsoNormal>Hi, I have client (a married couple) who own a building
through an LLC. The LLC interests consist of Class A and Class B units,
Class A having voting and management rights and Class B having none. Over
the last couple of years, they made 2 substantial gifts of the LLC interest
to their 2 children, which resulted in them gifting 98% of LLC interests
(all of which were Class B units) and the clients retaining Class A units.
The children received actual distributions based on their percentage
interests and paid income taxes on them.<o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal> <o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal>For some reason, their CPA had never filed the gift tax
returns, and they are currently in the process of filing them. The CPA is
telling me that I need to un-do the gifts, because they will be deemed
incomplete under Section 754. I am not sure how Section 754 applies to this
type of gifting situation. (Based on my understanding, Section 754 refers to
an election to step-up the basis of assets within a partnership when there
is a distribution of partnership property (which is not the case here) or a
transfer/sale or exchange of an interest by a partner (which also is not the
case here)). I am not quite understanding how the inability to make the
Section 754 election can make the gift incomplete?<o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal> <o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal>I understand that the children will not get the benefit
of the step-up basis because they were gifts and not sales, which would
result in higher capital gains tax for the children. However, the clients
did not want to structure them as sales, and without these gifting, his
estate tax liability would be significantly higher (as he has a taxable
estate).<o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal> <o:p></o:p></P></DIV>
<P class=MsoNormal>In any case, before I pick up the phone and talk to the
CPA, I just wanted to see if I was missing something about the 754 election
and gifting in this context. Any input would be welcome.<o:p></o:p></P>
<DIV>
<P class=MsoNormal> <o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal>Thanks.<o:p></o:p></P></DIV>
<DIV>
<P class=MsoNormal><BR clear=all><o:p></o:p></P>
<DIV>
<P class=MsoNormal> <o:p></o:p></P></DIV>
<P class=MsoNormal>-- <o:p></o:p></P>
<DIV>
<DIV>
<DIV>
<DIV>
<DIV>
<DIV>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Best
regards,</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'> </SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Jennifer
Y. Sohn</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Attorney
at Law</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>(Licensed
in CA and WA)</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Sohn Law
PLLC</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>10900 NE
4th Street, Suite 1850</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Bellevue,
WA 98004</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Tel:
425.522.3861</SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Fax:
425.732.9748 </SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'>Email:
<A href="mailto:jennifer@sohn-law.com" target=_blank><SPAN
style="COLOR: #0563c1">jennifer@sohn-law.com</SPAN></A></SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'><A
href="http://www.sohn-law.com/" target=_blank><SPAN
style="COLOR: #0563c1">http://www.sohn-law.com</SPAN></A></SPAN><o:p></o:p></P>
<P style="MARGIN: 0in 0in 0pt"><SPAN
style='FONT-SIZE: 10pt; FONT-FAMILY: "Georgia",serif; COLOR: black'> </SPAN><o:p></o:p></P>
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