[WSBARP] Recording a Deed with Two Excise Tax Exemptions
John J. Sullivan
sullaw at comcast.net
Fri Oct 28 09:28:59 PDT 2022
Jeanne:
In most cases it shouldn’t matter. But as long as the LLC is taxed as a partnership (and there’s no disguised sale) the contribution to it always is exempt from income tax under Section 721, even where disparate interests might disqualify it from the REET exemption under Rule 211.
John J. Sullivan
Sent from my iPad
> On Oct 27, 2022, at 9:59 AM, Jeanne Dawes <jjdawes at goregrewe.com> wrote:
>
>
> Thanks John. It is good to know that it does work. I didn’t mention WAC 458-61A-212 (no recognition of gain), knowing it would be a back up exemption. However, you led with that. Is there a reason you used that exemption instead of the mere change of form or identity? My guess is that is will not matter which one you use – both will work.
>
> Jeanne
>
> Jeanne J. Dawes
> Attorney at Law
> Gore & Grewe, P.S.
> 103 E. Indiana Avenue, Suite A
> Spokane, WA 99207-2317
> Voice: 509-326-7500
> Fax: 509-326-7503
> jjdawes at goregrewe.com
>
>
> INFORMATION CONTAINED IN THIS E-MAIL TRANSMISSION IS PRIVILEGED AND CONFIDENTIAL.
>
> From: wsbarp-bounces at lists.wsbarppt.com On Behalf Of John J. Sullivan, Esq.
> Sent: Thursday, October 27, 2022 12:35 AM
> To: 'WSBA Real Property Listserv' <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> Don’t forget that as long as the LLC is a partnership for federal income tax purposes, a contribution of real property to it by a Member ( especially a sole Member) is exempt from recognition of gain under Sec. 721 of the Code, and therefore the conveyance is exempt from the REET. WAC 458-61A-212.
>
> I just finished a years long clean up of a multi-generational disregard of the Torrens System on a commercial property. I quieted title in the names of the estates of H&W. Previously I had the estates form a LLC (partnership) and contribute the first property in formation of the LLC in exchange for all of the Member Units. REET Affidavit claimed the exemption under Rule 212. Then I distributed the Member Units to their son, my client and the sole beneficiary, filing the entity REET return claiming the inheritance exemption under 458-61A-202.
>
> Finally, when I at long last withdrew the second adjacent parcel from Torrens I had the two estates quitclaim it at the beneficiary Member’s instruction directly to the LLC, claiming the Rule 212 exemption again.
>
> So far no problem. The county accepted the deed. On review I doubt the DOR will pick it for audit, since even if they make me jump through the two step hoop both steps remain exempt.
>
> John J. Sullivan
>
>
>
> From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Jeanne Dawes
> Sent: Wednesday, October 26, 2022 5:31 PM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> Mark, The estate would be the sole member, until it distributed the membership interest to the heirs. The assets transferred to the LLC are still part of the decedent’s estate, which will be distributed to the heirs. I haven’t had to use this, but I think it should be possible. I can see where a PR may want to handle a distribution in this manner outside of saving a recording fee. If the property is problematic (environmental issues or the like), it may be beneficial for the heirs to receive an LLC membership interest as opposed to the real property itself to protect other property owned by the heirs. Or if there are heirs that do not get along, the PR can avoid an obstinate heir by creating the LLC and transferring the property to it. If I was going to structure this type of distribution I’d run it by DOR to get an opinion that the distribution from the estate is still considered an inheritance.
>
> Jeanne
>
> Jeanne J. Dawes
> Attorney at Law
> Gore & Grewe, P.S.
> 103 E. Indiana Avenue, Suite A
> Spokane, WA 99207-2317
> Voice: 509-326-7500
> Fax: 509-326-7503
> jjdawes at goregrewe.com
>
>
> INFORMATION CONTAINED IN THIS E-MAIL TRANSMISSION IS PRIVILEGED AND CONFIDENTIAL.
>
> From: wsbarp-bounces at lists.wsbarppt.com On Behalf Of Mark Anderson
> Sent: Wednesday, October 26, 2022 5:14 PM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> Yes, a probate estate can form an LLC and transfer the property into the name of the LLC. This conveyance would be exempt as a change in form or identity so long as the sole member of the LLC is the Estate itself. The probate estate is a different person from its collective heirs.
>
> So now what? For the heirs to ultimately have a beneficial interest in the property, the Estate would then need to transfer its membership interests to the heirs (pro rata according to how they would have taken if they received the property directly from the Estate as a distribution). In this case, I’m not confident that there is any exemption on point to avoid excise on this transfer of a controlling interest in an LLC other than characterizing it as a gift. In any case, this still looks like two transactions.
>
> Mark B. Anderson
> ANDERSON LAW FIRM PLLC
> 821 Dock St Ste 209 PMB 4-12
> Tacoma, Washington 98402
> +1 253-327-1750
> +1 253-327-1751 (fax)
> marka at mbaesq.com
> www.mbaesq.com
>
> CONFIDENTIALITY NOTICE
> This transmission is confidential and is intended solely for the use of the individual named recipient. It may be protected by the attorney-client privilege, work product doctrine, or other confidentiality protection. If you are not the intended recipient, or the person responsible to deliver it to the intended recipient, be advised that any dissemination, distribution, or copying of this communication is prohibited. If you have received this transmission in error, please immediately notify the sender via e-mail or by telephone at (253) 327-1750 that you have received the message in error, and then delete it. Thank you.
>
>
> From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Jeanne Dawes
> Sent: 10/26/2022 12:07 PM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> RCW 25.15.006 Definitions.
> (13) "Person" means an individual, corporation, business trust, estate, trust, partnership, limited partnership, limited liability company, association, joint venture, government, governmental subdivision, agency, or instrumentality or any other legal or commercial entity.
> RCW 25.15.071
>
> Formation—Certificate of formation.
>
> (1) In order to form a limited liability company, one or more persons must execute a certificate of formation. The certificate of formation must be delivered to the office of the secretary of state for filing in accordance with Article 2 of chapter 23.95 RCW and set forth:
>
> Mark,
> An estate can create an LLC, What basis is this not a mere change of form or identity?
>
> Jeanne
>
> Jeanne J. Dawes
> Attorney at Law
> Gore & Grewe, P.S.
> 103 E. Indiana Avenue, Suite A
> Spokane, WA 99207-2317
> Voice: 509-326-7500
> Fax: 509-326-7503
> jjdawes at goregrewe.com
>
>
> INFORMATION CONTAINED IN THIS E-MAIL TRANSMISSION IS PRIVILEGED AND CONFIDENTIAL.
>
> From: wsbarp-bounces at lists.wsbarppt.com On Behalf Of Mark Anderson
> Sent: Wednesday, October 26, 2022 11:48 AM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> Here is the response I just got from the King County recorder's office. Although I think they misunderstood the identity of the grantors and grantees in my situation (and as inartfully worded their response is), it is clear they want two transactions.
>
> That is a 2 part transaction. Since it’ll first need to be transferred from the persons to the LLC then LLC to the probated estate. It will be rejected if its in one transaction saying the same thing I’ve mention which is that is a 2 part transaction. 2 different transactions and 2 different wac exemptions cannot be provided on 1 REETA and Deed.
>
> As to Jeanne’s comment, there is a Controlling Interest Transfer Return (Form 84 0001Be) that is submitted to the Department of Revenue when an LLC (or other entity) conveys 50% or more of its beneficial interest.
>
> Follow-up question: would a transfer from the probate estate directly to the LLC really be a mere change in a form or identity such that it is exempt from excise tax under WAC 458-618-211? I would not think that that exemption would cover that conveyance.
>
> Mark B. Anderson
> ANDERSON LAW FIRM PLLC
> 821 Dock St Ste 209 PMB 4-12
> Tacoma, Washington 98402
> +1 253-327-1750
> +1 253-327-1751 (fax)
> marka at mbaesq.com
> www.mbaesq.com
>
> CONFIDENTIALITY NOTICE
> This transmission is confidential and is intended solely for the use of the individual named recipient. It may be protected by the attorney-client privilege, work product doctrine, or other confidentiality protection. If you are not the intended recipient, or the person responsible to deliver it to the intended recipient, be advised that any dissemination, distribution, or copying of this communication is prohibited. If you have received this transmission in error, please immediately notify the sender via e-mail or by telephone at (253) 327-1750 that you have received the message in error, and then delete it. Thank you.
>
>
> From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Jeanne Dawes
> Sent: 10/26/2022 10:57 AM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> I believe there is a special form to use when an LLC conveys 50% or more of its membership interest. There will not be a deed to record, and I believe the inheritance exemption will work on the form the LLC is to use to notify DOR of the conveyance. So on the deed from the estate to the estate created LLC it will just be one exemption the mere change of identity exemption.
>
> Jeanne
>
> Jeanne J. Dawes
> Attorney at Law
> Gore & Grewe, P.S.
> 103 E. Indiana Avenue, Suite A
> Spokane, WA 99207-2317
> Voice: 509-326-7500
> Fax: 509-326-7503
> jjdawes at goregrewe.com
>
>
> INFORMATION CONTAINED IN THIS E-MAIL TRANSMISSION IS PRIVILEGED AND CONFIDENTIAL.
>
> From: wsbarp-bounces at lists.wsbarppt.com On Behalf Of michael westseattleattorney.com
> Sent: Wednesday, October 26, 2022 10:31 AM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> In King, I had a REETA rejected with two exemptions ☹
>
>
> From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> on behalf of Jeanne Dawes <jjdawes at goregrewe.com>
> Sent: Wednesday, October 26, 2022 10:18 AM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: Re: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> I believe you can have the estate establish the LLC, then distribute the property to the LLC using the mere change of identity exemption, and then distribute membership interests to the heirs using the inheritance exemption.
>
> Jeanne
>
> Jeanne J. Dawes
> Attorney at Law
> Gore & Grewe, P.S.
> 103 E. Indiana Avenue, Suite A
> Spokane, WA 99207-2317
> Voice: 509-326-7500
> Fax: 509-326-7503
> jjdawes at goregrewe.com
>
>
> INFORMATION CONTAINED IN THIS E-MAIL TRANSMISSION IS PRIVILEGED AND CONFIDENTIAL.
>
> From: wsbarp-bounces at lists.wsbarppt.com On Behalf Of Mark Anderson
> Sent: Wednesday, October 26, 2022 9:58 AM
> To: WSBA Real Property Listserv <wsbarp at lists.wsbarppt.com>
> Subject: [WSBARP] Recording a Deed with Two Excise Tax Exemptions
>
> Dear All:
>
> I have posed this question to the King County Recorder and am still waiting for an answer. Because recording issues have been on your minds lately as a topic of discussion on this listserv, I thought I would run it by all of you.
>
> A probate estate plans to make a distribution of a single piece of real property to the heirs. I am aware that a distribution to the heirs as tenants-in-common would be exempt from excise tax as an inheritance under WAC 458-61A-202.
>
> Instead of distributing the property to the heirs as individuals, however, the heirs have requested that the property ultimately be conveyed into an LLC owned by all of the heirs in the same proration as they would have otherwise taken as tenants-in-common. I am aware that, so long as the owners have the same proportional interests in the property, conveyance from tenants-in-common into an LLC would be exempt from excise tax as a change in identity or form under WAC 458-618-211.
>
> I am trying to do this as one transaction, i.e., one deed from the probate estate into the LLC. How would you annotate the exemption(s) on the real estate excise tax affidavit? Or should I just do this as two successive transactions?
>
> Thanks in advance.
>
> Mark B. Anderson
> ANDERSON LAW FIRM PLLC
> 821 Dock St Ste 209 PMB 4-12
> Tacoma, Washington 98402
> +1 253-327-1750
> +1 253-327-1751 (fax)
> marka at mbaesq.com
> www.mbaesq.com
>
> CONFIDENTIALITY NOTICE
> This transmission is confidential and is intended solely for the use of the individual named recipient. It may be protected by the attorney-client privilege, work product doctrine, or other confidentiality protection. If you are not the intended recipient, or the person responsible to deliver it to the intended recipient, be advised that any dissemination, distribution, or copying of this communication is prohibited. If you have received this transmission in error, please immediately notify the sender via e-mail or by telephone at (253) 327-1750 that you have received the message in error, and then delete it. Thank you.
>
>
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