[WSBARP] Ideas for meeting Exemptions for Washington's Real Estate Excise Tax

[msafren at jennylinglaw.com]

Hello Fellow Listservs,

 

I would like to pick your collective brains regarding how to structure a
potential transaction so as to qualify for Washington's Real Estate Excise
Tax various exemptions.

 

Hypo:

LLC #1  owns raw land in Washington and wants to convey 50% ownership to
LLC#2 and create a new combined entity  in which both LLC #1 and LLC#2 have
an equal interest in exchange for payment.  Raw land will be jointly
developed hence the need for a combined LLC.  Both LLC# 1 and LLC #2 wants
to avoid Real Estate Excise Tax due to the value of the land. 

 

Potential exemptions:

1.	WAC 458-61A-101 (Controlling Interest) Convey less than 50%
ownership to LLC #2 to avoid triggering this scenario. This is less than
ideal for a number of reasons
2.	WAC 458-61A-212 (Not recognized as gain by IRS) -Transfer under 721-
LLC #1 transfers real property into a Partnership between LLC #1 and LLC#2.
Partners then transfer land into joint LLC in which is owned in same
percentage as the partnership and thus qualify as a mere change in identity
under WAC 458-61A-211.  So long as there is no gain from the transfer from
partnership to joint LLC, the partnership should not have any tax liability.


 

Situation #2 surely lends itself for the State to look through the
transaction and so there is certainly a concern that even if such actions
may meet the requirements of a Transfer under section 721, that the state
may look through the form of the transaction to assess the excise tax based
on the substance of the potentially connected transactions. 

 

If you see any flaws in these potential exemptions or can identify other
potential strategies to qualify for exemptions, please let me know. 

 

Warmest regards,

Michael S. Safren, Esq. 
Attorney at Law 

14900 Interurban Ave. S., Ste. 280 | Seattle, WA 98168 
11900 NE 1st St., Bldg. G - Ste. 300 |  Bellevue, WA 98005 
P: (206) 859-5098 | E:  <mailto:msafren at jennylinglaw.com>
msafren at jennylinglaw.com 
 <http://www.jennylinglaw.com> www.jennylinglaw.com |
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