[WSBARP] Excise Tax Exemption?

[Eric Nelsen]

I haven't had to do one of these transactions for years, but for what it's worth, if the purchase is structured as Sibs LLC selling to New LLC, then the purchase price is basically going to be 80% of the FMV of the real estate. So pay the tax on the purchase price, and there's no need for any exemption at all. The one issue is, if 80% of FMV is below the assessed value of the property, then you might get some pushback from DOR, or might need some narrative explanation attached to the REET Affidavit as to why the entire parcel is being sold for a below-assessed-value price. See the definition of "selling price" in WAC 458-61A-102(22)<https://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-102> for the relationship between selling price and true and fair value of the property conveyed.

This could also be structured as sibling and spouse individually purchase the real property from Sibs LLC for 80% of its FMV, and then they convey the property into New LLC. Again no need for an exemption, but same problem if the purchase price seems too low in DOR's eyes.

Alternatively, one way to minimize tax (though it increases transaction costs) I think could be:


  1.  Transfer property out of Sibs LLC to its individual owners. This is exempt under WAC 458-61A-211<https://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-211> (mere change in identity or form).
  2.  Owners sell their interests to the purchasing sibling and their spouse. Tax is paid on their collective 80% TIC interest in the property. Note that if purchaser is getting financing, it likely would be a refi rather than a purchase loan, because they already own a 20% interest in the property.
  3.  Purchasing sibling and their spouse transfer into New LLC, again exempt under -211.

There are some possible halfway solutions to this also. Maybe purchasing sibling alone exits membership in Sibs LLC and is distributed a 20% interest in the real estate in their individual name. That's exempt under -211. Then sibling can purchase the remaining 80% from Sibs LLC, for 80% of the FMV, and again no exemption needed.

I think the worst outcome from a tax perspective would be for purchasing sibling to purchase the others' interests in Sibs LLC-that is, it's not a real estate purchase at all, but rather a purchase of LLC interests. In that case, the transfer of more than 50% interest in the LLC triggers excise tax on the full FMV of the entire real estate owned by the LLC, no exemption for the 20% interest already owned. See WAC 458-61A-101<https://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-101>.

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com<mailto:eric at sayrelawoffices.com>

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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of samuel at meylerlegal.com
Sent: Tuesday, August 30, 2022 11:25 AM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com>; 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBARP] Excise Tax Exemption?

Listmates,

Following up on the inquiry below, I think it is pertinent to add that the New LLC is owned 50/50 by the sibling and their spouse and New LC has its own EIN.  Under the circumstances, does WAC 458-61A-211 provide an exemption against 20% of the purchase price because the purchasing sibling owns 20% of the seller-LLC and will own the buyer-LLC, 50/50, with their spouse?  Thanks for any input!

Sam


Samuel M. Meyler
Meyler Legal, PLLC
1700 Westlake Ave. N., Ste. 200
Seattle, Washington 98109
Tel:  206.876.7770
Fax:  206.876.7771
Email:  samuel at meylerlegal.com<mailto:samuel at meylerlegal.com>

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From: samuel at meylerlegal.com<mailto:samuel at meylerlegal.com> <samuel at meylerlegal.com<mailto:samuel at meylerlegal.com>>
Sent: Monday, August 29, 2022 6:46 PM
To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com<mailto:wsbarp at lists.wsbarppt.com>>; 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Excise Tax Exemption?

Listmates,

Five siblings each own a 20% share of Sibs LLC, which owns several properties.  One of the siblings seeks to purchase the properties from Sibs LLC and forms a new LLC with their spouse for that purpose.  What REET exemptions may apply?  Is there a particular way that this could be structured to obtain a favorable, or more favorable, result?  Thanks in advance.

Sam


Samuel M. Meyler
Meyler Legal, PLLC
1700 Westlake Ave. N., Ste. 200
Seattle, Washington 98109
Tel:  206.876.7770
Fax:  206.876.7771
Email:  samuel at meylerlegal.com<mailto:samuel at meylerlegal.com>

NOTICE:

This electronic message contains information which may be Confidential or Privileged and constitutes an electronic communication within the meaning of the Electronic Communications Privacy Act 18 USC 2510. The information is intended to be for the use of the individual or entity named above.  If you are not the intended recipient, please be aware that any disclosure, copying, distribution or use of the contents of this information is prohibited.  If you received this transmission in error, please notify the sender and delete the copy you received together with any attachments.  Thank you.

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