Entity structure on out-of-state rentals and no CA franchise tax?

29 Replies

Originally posted by @Lynnette E. :
Originally posted by @Rob C.:


I took your comments as you have already decided what you want to and are going to do.  You are looking for someone to agree with what you want to do.  

I have the same conclusion as Lynnette: You, Rob, want someone to tell you: the FTB is wrong, and so are all the accountants and lawyers who rolled over and are too timid to stand up to the FTB. 

I also understand where you're coming from. You want a solid proof that the FTB is correct, or otherwise you will feel they are robbing you, and there is some way around it.

As I mentioned previously, my personal layman's reading of the CA statute makes me believe that the FTB is overreaching in their stance. So what? Neither you nor me are lawyers, unlike the lawyers the FTB has in their employ. I have neither interest nor resources to fight them. Do you, even if you're right?

As a practical conclusion from this thread, you have not been able to find one person willing to fight this battle. We all assume it is a losing battle. This is why we're no longer debating it. You may be right, but someone will have to defeat the FTB first.

I took your comments as you have already decided what you want to and are going to do. You are looking for someone to agree with what you want to do. I am not that person. I have worked with Trusts for many years, decades. I am pretty confident in how Trusts work and what they do not do.

@Lynnette E., Interesting that you and @Michael Plaks interpreted my comments this way. It’s the opposite in fact. I don’t expect “someone to agree with what [I] want to do” given the overwhelming number of people that express a sense of certainty to the contrary across many different forum threads. I did expect, however, that at least a few of those people would step up and point to the sources of information substantiating their opinions (and my hunch was that it would probably be an ambiguous part of the tax code that I would have to interpret and base my decision on). I respect that you have at least replied Lynette, but it’s clear you are more interested in saying you know what you’re talking about rather than showing it.

As a practical conclusion from this thread, you have not been able to find one person willing to fight this battle. We all assume it is a losing battle. This is why we're no longer debating it. You may be right, but someone will have to defeat the FTB first.

@Michael Plaks - has the FTB ever won on this issue? if so, then I understand the perspective you’re sharing. I’ll echo my previous post on page 1 of this thread for anyone who can answer it : Are you familiar with any court cases where the FTB has prevailed on this matter (especially with the aforementioned combination of trust and LLC)? I've heard the same thing from others that the FTB has and always will win in court, but no one I've talked to has been able to point to any such cases that I can read up on to verify. I've also spent a fair share of time trying to search google and justia for them myself, but I've come up empty. Conversely, I've come upon cases like the ones described here (which I acknowledge is not the same context): https://www.thetaxadviser.com/... I’m not an attorney, but I would be grateful to be directed to any case law I can read for my own edification if it shines more light on this topic.

For what it’s worth I do know a few investors that are “willing to fight this battle” - they just don’t see it as fighting a battle. They invest out of state and don’t pay the franchise tax because they don’t see any reason they should have to. I’m just wondering why so many on here “assume it is a losing battle.” Do they know something I don’t? Or is it merely a common misconception propagated by everyone who believes it?

@Basit Siddiqi - thanks for chiming in, although I’m not sure how to interpret that. Is the scenario I’ve described at the onset of this thread one such way to avoid it in your opinion?