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<p class="MsoNormal"><span style="font-size:11.0pt;font-family:"Calibri",sans-serif;color:black">Dwight: WOW!<o:p></o:p></span></p>
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<span style="font-size:11.0pt;color:black"><img width="177" height="73" id="Picture_x0020_1" src="cid:image003.jpg@01D644B5.44C04930"><o:p></o:p></span></p>
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<p class="MsoNormal" style="margin-left:-5.75pt"><b><span style="font-size:9.0pt;font-family:"Calibri",sans-serif;color:black">Gregory L. Ursich
</span></b><span style="font-size:9.0pt;font-family:"Calibri",sans-serif;color:black"><o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left:-5.75pt"><span style="font-size:9.0pt;font-family:"Calibri",sans-serif;color:black">Shareholder<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left:-5.75pt"><span style="font-size:9.0pt;font-family:"Calibri",sans-serif;color:black">Skyline Tower, Suite 1500 | 10900 NE 4<sup>th</sup> Street | Bellevue, WA 98004<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-left:-5.75pt"><span style="font-size:9.0pt;font-family:"Calibri",sans-serif;color:black">P: 425.450.4258 | F: 425.635.7720<o:p></o:p></span></p>
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<p class="MsoNormal"><span style="font-size:10.0pt;font-family:"Calibri",sans-serif;color:black">This electronic mail transmission is privileged and confidential and is intended only for the review of the party to whom it is addressed. If you have received
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<p class="MsoNormal"><b><span style="font-size:11.0pt;font-family:"Calibri",sans-serif">From:</span></b><span style="font-size:11.0pt;font-family:"Calibri",sans-serif"> wsbarp-bounces@lists.wsbarppt.com [mailto:wsbarp-bounces@lists.wsbarppt.com]
<b>On Behalf Of </b>Dwight Bickel<br>
<b>Sent:</b> Wednesday, June 17, 2020 2:15 PM<br>
<b>To:</b> WSBA Real Property Listserv <wsbarp@lists.wsbarppt.com>; Jennifer Johnson <jmhanigan@cni.net><br>
<b>Subject:</b> Re: [WSBARP] Controlling Interest Transfer<o:p></o:p></span></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">Jennifer Johnson posted a complicated question. The answer is more complicated due to new statutes and regulations. The answer is further difficult because the position of the DOR about reporting exempt transactions is less clear with
controlling interest transfers without a recorded document that prompts the affidavit claiming exemption. <o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">I believe that the described series of transfers result in obligations to report the transfers to the DOR, but the determinations about taxability vary between the separated transfers in the example, where most are exempt but one is taxable
under the real estate sales tax statutes and regulations. <o:p></o:p></p>
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<p class="MsoNormal"> <o:p></o:p></p>
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<p class="MsoNormal">The starting point is that 50% of the controlling interest has transferred to one person within 36 months [Review 2020 versions of RCW 82.45.010(2)(a) and 82.45.033(1)(b) and examples within WAC 458-61A-101(2)(ii).] However, some transfers
were not necessarily "sales" that require payment of the tax. The DOR now claims affidavits are needed for transfers that are exempt, such as transfers by operation of law, like inheritance and court orders.<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">It is important to separately analyze and report each of the five transfers. The first transfer already occurred in December 2018, when the 25% interest of D transferred by operation of law when D1, D2, D3 and D4 inherited 6.25% each. The
first transfer is inheritance from D which is not a taxable sale [(3)(a) and 458-61A-202]. I presume the title is held by the LLC and no deeds are recorded.<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">The DOR believes that an Excise Tax Affidavit is required for transfers by operation of law to tell the DOR about the transfer of ownership, even when exempt, and even if there is no recording. See RCW 82.45.197 and WAC 458-61A-101; WAC
458-61A-303(2) applies if there was court order or deed of distribution recorded]. There is a fee of course. However, that was not a controlling interest transfer by definition. No deed is required to be recorded and no affidavit is required under the controlling
interest statute at that time. If an affidavit was otherwise required, like recording a distribution deed, that statute states the documents needed to claim the exemption from real estate sales tax.
<span style="font-family:"Segoe UI",sans-serif;background:white">D1 is the logical person to complete the affidavit related to the inheritance from D. </span><o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">The next three proposed transfers are proposed gifts from D2, D3 and D4 to D1. The combined transfers of 18.75% are not sales of a controlling interest [(3)(b)]. They are probably exempt as gifts and also exempt as partition among tenants
in common [(3)(e)]. The affidavit requirements will be different if a recording is intended.<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">Gift transfers are not necessarily exempt though, based on the DOR relief from debt rules [458-61A-103]. However, in this example, no consideration is attributed due to assumption of debt by D4 because D1, D2 and D3 could have no personal
liability for D's debt. D1 may or might not choose to pay any debt encumbering the property.
<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">The last proposed transfer appears to be a taxable sale from A to D1 based upon the consideration. Unfortunately, this last fifth transfer is within 36 months, so the series of transfers trigger reporting duties, because now D1 owns 50%,
which sufficient for a controlling interest. If A and D had transferred separately to D1 within 36 months, the transactions would require reporting to DOR. Again, different exemptions could have applied to A and D.<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal"><span style="font-family:"Segoe UI",sans-serif">The combination of multiple parties as sellers, for different consideration, creates taxable and exempt transactions. The effect of assumption of debt further complicates the amount subject
to the tax. The fifth transfer is a taxable sale of 25% and should be valued as a portion of the value of the property, or the actual price if DOR accepts that is reasonable. <o:p></o:p></span></p>
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<p class="MsoNormal"><span style="font-family:"Segoe UI",sans-serif"><o:p> </o:p></span></p>
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<p class="MsoNormal">However, if you accept that these are unrelated from the first inheritance, then t<span style="font-family:"Segoe UI",sans-serif;background:white">he four proposed transfers of the interests of D2, D3, D4 and A to D1 are probably not a
defined controlling interest transfer. </span>These four together transfer 43.75% of control of the LLC. I believe the transfers from A are not aggregated with the transfers from A to D1. The second, third and fourth transfers are not necessarily acting in
concert with the fifth sale. The change to three years occurred after the first transfer, but I expect the DOR will conclude the present law applies.<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">"Acting in concert" occurs:<o:p></o:p></p>
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<p class="MsoNormal">(i) When one or more persons have a relationship with each other such that one person influences or controls the actions of another through common ownership. For example, if a parent corporation and a wholly owned subsidiary each purchase
a 25% interest in an entity, the two corporations have acted in concert and acquired a controlling (i.e., at least 50%) interest in the entity.<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">The grantors for each transfer will separately complete excise tax affidavits to be sent to the Olympia DOR [RCW 82.45.090(2) and WAC 458-61A-101(8)(a).] I would send them together to get one employee to discuss the combination of taxable
and exempt transactions together. Also, that opinion of non-taxability will be binding. However, by asking, you can be sure a determination of taxability will be enforced.<o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">This is the excise tax affidavit for controlling interest transfers and the address of DOR at Olympia where it is mailed:<o:p></o:p></p>
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<p class="MsoNormal"><a href="https://dor.wa.gov/sites/default/files/legacy/Docs/forms/RealEstExcsTx/84-0001b-2020.pdf">https://dor.wa.gov/sites/default/files/legacy/Docs/forms/RealEstExcsTx/84-0001b-2020.pdf</a><o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">I recommend contact with the DOR at Olympia, finding a person to review the facts and worth with you resolving the questions. The title and escrow people are not reliable on their knowledge of controlling interest transfers and mixing taxability
with determination of the amount of tax. The employee at the County Recorder is not sufficiently reliable. The different counties are notoriously inconsistent and often incorrect. I would seek a binding opinion that no tax is due under these facts. However,
a reasonable attorney might conclude no reporting is required for the four proposed transactions because they are not the sale of a controlling interest<span style="font-family:"Segoe UI",sans-serif;background:white">. Only 43.75% of the interest of the corporate
owner has transferred separately by the proposed four transactions where A, D1, D2 and D3 transfer to D1.</span><span style="font-family:"Segoe UI",sans-serif"> The obligors of the tax are grantors, but grantee D1 is also liable if choosing not to report and
the lien is upon the real property.</span><o:p></o:p></p>
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<p class="MsoNormal"><o:p> </o:p></p>
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<p class="MsoNormal">Dwight A. Bickel<o:p></o:p></p>
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<p class="MsoNormal">Washington Title Professional<o:p></o:p></p>
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<p class="MsoNormal"><a href="mailto:dwightbickel@hotmail.com">dwightbickel@hotmail.com</a><o:p></o:p></p>
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<p class="MsoNormal"><a href="http://www.linkedin.com/in/dwightbickel">www.linkedin.com/in/dwightbickel</a><o:p></o:p></p>
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<p class="MsoNormal">http:/www.titleadvisor.com<o:p></o:p></p>
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<p class="MsoNormal">206-484-1976 <o:p></o:p></p>
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