[WSBARP] Gift or sale? REET

[Josh Grant]

Two brothers own (1) 50% value of real property each and (2) brother “A” owns 1/7th and brother “ B” owns 3/7ths interest in S corp which owns other real estate only.

The two brothers want to transfer by gift their undivided interests to each other without paying REET.  There will be no legal agreement requiring them to do a mutual transfer.

If Brother B gives his brother A an undivided interest of land ; and then simultaneously A gives his 1/7th of S corp stock to brother B (so that B now owns a controlling interest), again as a gift...  Will Department of Revenue want excise tax on either/each transfer?  (based on the assessed value of the real estate)
My guess is yes. although I have seen different answers on this on the list serve recently.

Assume all the above but the land interest is “gifted”  in 2017 and the transfer of the S corp takes place over a year later.. then is the answer “no”?

WAC 458-61A-101 in part says 
3) In general. In order for the tax to apply when the controlling interest in an entity that owns real property is transferred, the following must have occurred:
(a) The transfer or acquisition of the controlling interest occurred within a twelve-month period.

(I also wonder if “the controlling interest” means that over 50% is transferred or it means that any interest like 1/7th is transferred which ends up shifting the controlling interest???)


IN THE ALTERNATIVE Then I am wondering IF by waiting a year, that will strenghthen the argument that theses were just gifts, no “consideration for” the transfers...  and also because of the above WAC concerning controlling interest,  exempts the transfer.  Each has acquired their present interests in the S corp longer than a year ago.

thanks

Josh Grant

Joshua F. Grant, PS
Attorney at Law
P. O. Box 619
Wilbur, WA 99185
tel 509 647 5578
fax 509 647 2734
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