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<p class="MsoNormal"><span style="font-size:12.0pt;color:blue">Rob, I should have been more clear. If the transfer already occurred from Grantor to LLC, and at the time of transfer the LLC already had two members, trying to call it a gift now, may be problematic.
But, if you are able rescind the transaction between the Grantor and LLC, and then do a gift from Grantor to significant other, and then have the two of them convey to LLC, that should work. Possibly instead of rescinding, you can do a re-record to correct
Grantee. And then go from there. Just some ideas. I’m not sure how DOR will respond, but it’s worth a shot.<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;color:blue"><o:p> </o:p></span></p>
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<p class="MsoNormal"><i><span style="font-size:18.0pt;font-family:"TypoUpright BT";color:blue">Jeanne</span></i><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue">
<o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p> </o:p></span></p>
<p class="MsoNormal"><b><i><span style="font-size:18.0pt;font-family:"TypoUpright BT";color:blue">Jeanne J.</span></i></b><b><i><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue">
</span></i></b><b><i><span style="font-size:18.0pt;font-family:"Bella Donna";color:blue">Dawes<o:p></o:p></span></i></b></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial","sans-serif";color:blue">Attorney at Law</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial","sans-serif";color:blue">Gore & Grewe, P.S.</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial","sans-serif";color:blue">103 E. Indiana Avenue, Suite A</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial","sans-serif";color:blue">Spokane, WA 99207-2317</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial","sans-serif";color:blue">Voice: 509-326-7500</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial","sans-serif";color:blue">Fax: 509-326-7503</span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p></o:p></span></p>
<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Arial","sans-serif";color:blue"><a href="mailto:jjdawes@goregrewe.com">jjdawes@goregrewe.com</a></span><span style="font-size:12.0pt;font-family:"Times New Roman","serif";color:blue"><o:p></o:p></span></p>
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<p class="MsoNormal"><span style="font-size:12.0pt;color:blue"><o:p> </o:p></span></p>
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<p class="MsoNormal"><b><span style="font-size:10.0pt;font-family:"Tahoma","sans-serif"">From:</span></b><span style="font-size:10.0pt;font-family:"Tahoma","sans-serif""> wsbarp-bounces@lists.wsbarppt.com [mailto:wsbarp-bounces@lists.wsbarppt.com]
<b>On Behalf Of </b>Rob Rowley<br>
<b>Sent:</b> Thursday, April 02, 2015 9:41 AM<br>
<b>To:</b> WSBA RPPT<br>
<b>Subject:</b> [WSBARP] Mere Change In Identity (WAC 458-61A-211) & A Committed Intimate Relationship - DOR Audit Letter<o:p></o:p></span></p>
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<p class="MsoNormal"><o:p> </o:p></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Has anyone had any experience in responding to a DOR audit letter where DOR is challenging a transfer of residential rental properties from an individual into a Washington
State LLC where the grantor is still in a 15+ year, committed intimate relationship with his spouse (but held title solely in his name and properties were acquired during C-I-R) and the new LLC has equally split ownership (50/50 member interests) between the
two C-I-R individuals. </span><o:p></o:p></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span><o:p></o:p></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">DOR is taking the position that because they were not married or in a registered domestic partnership that it is not exempt, and as such wants lots and lots of money.</span><o:p></o:p></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif""> </span><o:p></o:p></p>
<p class="MsoNormal"><span style="font-size:12.0pt;font-family:"Times New Roman","serif"">Thoughts?</span><o:p></o:p></p>
<p class="MsoNormal" style="line-height:12.0pt"><b><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> </span></b><o:p></o:p></p>
<p class="MsoNormal" style="line-height:12.0pt"><b><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> </span></b><o:p></o:p></p>
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R. Rowley</span></b><span style="font-size:10.0pt;font-family:"Times New Roman","serif""> | Attorney at Law</span><o:p></o:p></p>
<p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">505 W. Riverside Ave, Suite 500</span><o:p></o:p></p>
<p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Spokane, WA 99201</span><o:p></o:p></p>
<p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Telephone: (509) 252-5074</span><o:p></o:p></p>
<p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Mobile: (509) 994-1143</span><o:p></o:p></p>
<p class="MsoNormal" style="line-height:12.0pt"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Facsimile: (509) 928-3084</span><o:p></o:p></p>
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<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Times New Roman","serif"">Practice concentrated on business, real estate and general legal matters in Washington and Idaho.</span><o:p></o:p></p>
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<h2 style="margin:0in;margin-bottom:.0001pt"><span style="font-size:13.5pt;font-family:"Arial Black","sans-serif";color:black;font-weight:normal">WAC 458-61A-211</span><o:p></o:p></h2>
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<p class="MsoNormal" align="right" style="text-align:right"><span style="font-family:"Arial","sans-serif";color:black"><a href="http://app.leg.wa.gov/WAC/registerfiling.aspx?cite=458-61A-211" id="ctl00_ContentPlaceHolder1_hlRegisterFilings"><span style="color:#2B674D;background:#EFEBA5;text-decoration:none">Agency
filings affecting this section</span></a></span><o:p></o:p></p>
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<h1 style="margin-bottom:7.5pt"><span style="font-size:18.0pt;font-family:"Arial Black","sans-serif";color:black;font-weight:normal">Mere change in identity or form—Family corporations and partnerships.</span><o:p></o:p></h1>
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<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(1)<span class="apple-converted-space"> </span><b>Introduction.</b><span class="apple-converted-space"> </span>A transfer of real property is exempt from
the real estate excise tax if it consists of a mere change in identity or form of ownership of an entity. This exemption is not limited to transfers involving corporations and partnerships, and includes transfers of trusts, estates, associations, limited liability
companies and other entities. If the transfer of real property results in the grantor(s) having a different proportional interest in the property after the transfer, real estate excise tax applies.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(2)<span class="apple-converted-space"> </span><b>Qualified transactions.</b><span class="apple-converted-space"> </span>A mere change in form or identity
where no change in beneficial ownership has occurred includes, but is not limited to:</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(a) The transfer by an individual or tenants in common of an interest in real property to a corporation, partnership, or other entity if the entity receiving
the ownership interest receives it in the same pro rata shares as the individual or tenants in common held prior to the transfer. (See also WAC<span class="apple-converted-space"> </span><a href="http://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-212"><span style="color:#2B674D;text-decoration:none">458-61A-212</span></a>,
Transfers where gain is not recognized under the Internal Revenue Code.)</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(b) The transfer by a corporation, partnership, or other entity of its interest in real property to its shareholders or partners, who will hold the real
property either as individuals or as tenants in common in the same pro rata share as they owned the corporation, partnership, or other entity. To the extent that a distribution of real property is disproportionate to the interest the grantee partner has in
the partnership, it will be subject to real estate excise tax.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(c) The transfer by an entity of its interest in real property to its wholly owned subsidiary, the transfer of real property from a wholly owned subsidiary
to its parent, or the transfer of real property from one wholly owned subsidiary to another.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(d) The transfer by a corporation, partnership or other entity of its interest in real property to another corporation, partnership, or other entity if
the grantee owner(s) receives it in the same pro rata shares as the grantor owner(s) held prior to the transfer.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(e) Corporate mergers and consolidations that are accomplished by transfers of stock or membership, and mergers between corporations and limited partnerships
as provided in chapters<span class="apple-converted-space"> </span><a href="http://app.leg.wa.gov/RCW/default.aspx?cite=25.10"><span style="color:#2B674D;text-decoration:none">25.10</span></a><span class="apple-converted-space"> </span>and<span class="apple-converted-space"> </span><a href="http://app.leg.wa.gov/RCW/default.aspx?cite=24.03"><span style="color:#2B674D;text-decoration:none">24.03</span></a><span class="apple-converted-space"> </span>RCW.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(f) A transfer of real property to a newly formed, beneficiary corporation from an incorporator to the newly formed corporation, provided:</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(i) The proper real estate excise tax was paid on the original transfer to the incorporator; and</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(ii) It was documented on or before the original transfer that the incorporator received title to the property on behalf of that corporation during its
formation process.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">This tax exemption does not apply to a transaction in which a property owner acquires title in his or her own name and later transfers title to the corporation
upon its formation.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(g) A transfer into any revocable trust.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(h) A conveyance from a trustee of a revocable trust to the original grantor or to a beneficiary if no valuable consideration passes, or if the transaction
is otherwise exempt under this chapter (for example, a gift or inheritance). A sale of real property by the trustee to a third party, or to a beneficiary for valuable consideration, is subject to the real estate excise tax.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(3)<span class="apple-converted-space"> </span><b>Examples.</b><span class="apple-converted-space"> </span>The following examples, while not exhaustive,
illustrate some of the circumstances in which a grant of an interest in real property may or may not qualify for this exemption. These examples should be used only as a general guide. The taxability of each transaction must be determined after a review of
all the facts and circumstances.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(a) Andy owns a 100% interest in real property. He transfers his property to his solely owned corporation. The transfer is exempt from real estate excise
tax because there has been no change in the beneficial ownership interest in the property.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(b) Elizabeth owns a 100% interest in real property, and is the sole owner of Zippy Corporation. She transfers her property to Zippy. The corporation pays
$5,000 to Elizabeth and agrees to make payments on the underlying debt on the property. Despite the fact that there was consideration involved in the transfer, it is still exempt from tax because there was no change in beneficial ownership.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(c) Jim, Kathie, and Tim own real property as joint tenants. They transfer their property to their LLC in the same pro rata ownership. The transfer is
exempt from real estate excise tax because there has been no change in beneficial ownership.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(d) Pat, Liz, and Erin own Stage Corporation. They also own Song & Dance Partnership, in the same pro rata ownership percentages as their interests in
the corporation. Stage Corporation transfers real property to Song & Dance Partnership. The transfer is exempt from real estate excise tax, because there has been no change in beneficial interest.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(e) Morgan owns real property. Brea owns Sparkle Corporation. Morgan transfers real property to Sparkle in exchange for an interest in the corporation.
The transfer is subject to real estate excise tax because there has been a change in the beneficial interest in the real property. The tax applies to the extent that the transfer of real property results in the grantor having a different proportional interest
in the property after it is transferred. (Note, however, that Morgan and Brea may be able to structure their transaction in a manner that would qualify for exemption under WAC<span class="apple-converted-space"> </span><a href="http://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-212"><span style="color:#2B674D;text-decoration:none">458-61A-212</span></a>.)</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(f) Dan owns property as sole owner. Jill owns property as sole owner. Dan and Jill each transfer their property to Rhyming LLC, which they form together.
The transfers are taxable because there has been a change in the beneficial ownership interest in the real property. To the extent that the transfer of real property results in the grantor having a different proportional interest in the property after the
transfer, it is taxable. (Note, however, that Dan and Jill may qualify for an exemption under WAC<span class="apple-converted-space"> </span><a href="http://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-212"><span style="color:#2B674D;text-decoration:none">458-61A-212</span></a>.)</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(g) Fred and Steve are equal partners in Jazzy Partnership. They decide to transfer real property from the partnership to themselves as individuals. Based
on its true and fair value, the partnership transfers 60% of the real property to Fred and 40% to Steve. This distribution is not in proportion to their ownership interest in Jazzy Partnership, and the transfer is not exempt because there has been a change
in the beneficial ownership interest. To the extent that the transfer of property results in the grantor having a different proportional interest in the property after the transfer, it is taxable. (Note, however, that Fred and Steve may qualify for an exemption
under WAC<span class="apple-converted-space"> </span><a href="http://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-212"><span style="color:#2B674D;text-decoration:none">458-61A-212</span></a>.)</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(4)<span class="apple-converted-space"> </span><b>Disparate treatment of ownership interests.</b></span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(a) Where the ownership of real property is different for financial accounting purposes than for federal tax purposes, the beneficial ownership interest
in the real property is deemed the entity which is the owner for financial accounting purposes. Any transfer from the entity that is the owner for federal tax purposes to the owner for financial accounting purposes, or vice versa, is subject to the real estate
excise tax.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(b) For example, Giant Company wants to expand its business. It identifies some real property, but is unable to finance the purchase through a normal loan.
It contracts with Mega Loans Inc. to enter into a "synthetic lease" for the purchase of the real property. Under the terms of the synthetic lease, Mega Loans will take title to the real property, and Giant Company will lease it from Mega Loans. Real estate
excise tax is paid on the purchase of the real property by Mega Loans. The terms of the lease also provide that Giant Company will be the owner for federal tax purposes and Mega Loans will be the owner for financial accounting purposes. Per the lease agreement,
after a specified time Mega Loans will transfer title to the real property to Giant Company. The transfer of title from Mega Loans to Giant Company is subject to real estate excise tax.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(5)<span class="apple-converted-space"> </span><b>Family corporations, partnerships, or other entities.</b><span class="apple-converted-space"> </span>This
exemption applies to transfers to an entity that is wholly owned by the transferor and/or the transferor's spouse, state registered domestic partner, children, or state registered domestic partner's children regardless of whether the transfer results in a
change in the beneficial ownership interest. However, real estate excise taxes will become due and payable on the original transfer as otherwise provided by law if:</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(a) The partnership or corporation thereafter voluntarily transfers the property; or</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(b) The transferor, spouse, state registered domestic partner, children, or state registered domestic partner's children voluntarily transfer stock in
the corporation, or interest in the partnership capital to other than:</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(i) The transferor and/or the transferor's spouse, state registered domestic partner, children, or state registered domestic partner's children;</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(ii) A trust having the transferor and/or the transferor's spouse, state registered domestic partner, children, or state registered domestic partner's
children as the only beneficiaries at the time of transfer to the trust; or</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(iii) A corporation or partnership wholly owned by the original transferor and/or the transferor's spouse, state registered domestic partner, children,
or state registered domestic partner's children within three years of the original transfer to which this exemption applies, and the tax on the subsequent transfer is not paid within sixty days of becoming due.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">For example, parents own real property as individuals. They create an LLC that is owned by themselves and their three children. The parents transfer the
real property to the LLC. Despite the fact that there was a change in beneficial ownership interest, it is still exempt from tax, because the LLC is owned by the grantor and/or the grantor's spouse, state registered domestic partner, children, or state registered
domestic partner's children.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">(6)<span class="apple-converted-space"> </span><b>Transfers when there is not a change in identity or form of ownership of an entity.</b><span class="apple-converted-space"> </span>This
exemption applies to transfers of real property when the grantor and grantee are the same.</span><o:p></o:p></p>
<p class="MsoNormal" style="text-indent:.25in"><span style="font-family:"Arial","sans-serif";color:black">For example, John and Megan own real property as tenants in common. They decide that they prefer to hold the property as joint tenants with rights of survivorship.
John and Megan, as tenants in common, convey the property to John and Megan as joint tenants with rights of survivorship. The transfer is exempt from real estate excise tax.</span><o:p></o:p></p>
<p class="MsoNormal"><span style="font-family:"Arial","sans-serif";color:black">[Statutory Authority: 2009 c 521. WSR 10-07-133, § 458-61A-211, filed 3/23/10, effective 4/23/10. Statutory Authority: RCW<span class="apple-converted-space"> </span><a href="http://app.leg.wa.gov/RCW/default.aspx?cite=82.32.300"><span style="color:#2B674D;text-decoration:none">82.32.300</span></a>,
82.04.150, and 82.01.060(2). WSR 06-20-036, § 458-61A-211, filed 9/25/06, effective 10/26/06. Statutory Authority: RCW<a href="http://app.leg.wa.gov/RCW/default.aspx?cite=82.32.300"><span style="color:#2B674D;text-decoration:none">82.32.300</span></a>, 82.01.060(2),
and 82.45.150. WSR 05-23-093, § 458-61A-211, filed 11/16/05, effective 12/17/05.]</span><o:p></o:p></p>
<p class="MsoNormal"> <o:p></o:p></p>
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