All Forum Posts by: Chris Wade

Hi Michael! I'm happy to clarify. First I do want to clear the air that while I am a senior attorney at Anderson, I am not Anderson's legal counsel. And you're not wrong- this is in fact just a ruling, somewhat similar to an IRS private letter ruling, that is not necessarily binding law. A key difference between a Chief Counsel Ruling (CCR) and a private letter ruling (PLR) though is that CCRs are authoritative interpretations of CA tax law and can be cited by taxpayers as persuasive authority- PLRs cannot usually be successfully argued as precedent as they are truly intended to be specific in nature and scope. However, we have had much interaction with the FTB over the last several decades and our strategy using the WST has not been shot down by them.

To your point, this could change any day, but they are well aware of what our clients have been doing and have not given us or our clients push back. As such, we've used the ruling to successfully utilize the WST under the interpretation that these rulings apply to business trusts and not just Massachusetts Business Trusts. As for your third point, I think we can agree that California's long arm here is a bit too long- especially considering CA RTC Section 17941(d) where it states essentially any entity is subject to the tax as long as the LLC was "formed by one or more persons under the law of this state, any other country, or any other state." Now hopefully you don't work for the FTB and plan to use this against me, but I don't interpret a WST to necessarily be a "person" according to 17941(d) so when the WST forms and owns these out of state LLCs...the end result is what our hundreds, if not thousands, of CA clients have experienced for several years now.

Please note that we do not feel the WST is appropriate in all circumstances, and honestly a lot of the time we still recommend our clients to consider the $800 franchise tax a cost of doing business in CA, as it is fairly easy to raise rent by $70 per month to offset that cost.  

Hopefully this clarifies a bit!

Hi Brian! If this is a conventional loan, it generally isn't that difficult to transfer the property into an LLC after you've closed. As long as you keep the loan in your name and stay on top of the payments, transferring into an LLC that you own should not raise red flags with the lender necessarily. If the LLC has different ownership than what is on the loan though, this may create issues for you.

In 2016, there were two Chief Counsel Rulings by the Franchise Tax Board where they declared, at least in some instances, that business trusts like a Wyoming Statutory Trust, are not considered "corporations" and would therefore not be subject to the minimum franchise tax as defined in CA Rev & Tax Code § 23153. As long as the Wyoming Statutory Trust is taxed as a disregarded entity, it has not triggered the minimum franchise tax for hundreds of our clients who have utilized them successfully. Here is a link to one of the Chief Counsel Rulings 
https://www.ftb.ca.gov/tax-pros/law/chief-counsel-rulings/20...

@Katie Balatbat is right that CA will likely still charge you at least the California Franchise Tax for entities you set up outside of CA while you physically reside in CA, but you shouldn't have to register it in CA as a foreign LLC. My firm has had thousands of clients that invest this way and have been just fine, but yes CA is absolutely more cumbersome to deal with than other states and will charge their pound of flesh where they see fit.

Many of my clients acquire new properties in their names first to close the deal, and then transfer into LLCs after the fact. They typically do not have issues with triggering the due on sale clause" when they use disregarded LLCs or the "mothership" partnership LLC @Stephen Nelson mentioned. This is because you are not actually selling the property to a third party for tax purposes, and you remain obligated on the loan. This approach allows you to continue to get loans under your personal name while planning for asset protection. Also, while insurance is a must, I always recommend pairing a good insurance policy with a proper LLC structure for maximum protection- there are too many carveouts with insurance these days to be safely relied on alone. In my opinion, if you have investment properties you want to protect, or isolate from each other's liabilities, the LLC is non-negotiable right then and there. Finally, to ensure your family benefits from your efforts, you'll want a comprehensive estate plan tied into all of this as well

You'll be better off creating the LLC in Wisconsin from the get-go, as starting the LLC in CA and then foreign filing into WI doesn't really offer any benefits to you. A registered agent is required to create an LLC in any state, and there are several good companies that offer registered agent services online.

Agreed, this is unfortunately becoming more of a trend across the nation. Florida is a heavy offender in this regard but it's also being seen in Utah and elsewhere. For investment properties this will only further emphasize the importance of protecting the property however you can such as holding them in LLCs or other asset protection structures. Sure this won't necessarily help much with natural disasters but will fill in insurance gaps by providing a layer of protection from tenants and others making use of the property