Attnys: Question about Disregarded LLC

[john70t]

Dad passed away a few years ago.
-His trust provided myself a small very old rental property house as an investment.
-Rents are on the low end and upkeep is on the high end.
-Good tenants. Good situation. I want to keep everything the same.

The Title was in his personal name for 15 of the last 20 years.
Then into an LLC (because the bank demanded it for refinancing).
Then quickly back into his personal name.
Then quickly back into an LLC again.
He became ill during this time and there was a lot happening.

The city wavered the uncapping for him in writing and sent him a refund.
Single member. Single taxes.

Now, despite city law wavering re-assessment when transfer occurs between family members:
-The city is now planning on un-capping the building valuation.
-The projected new taxes will be more than double.
-They will be even significantly greater than the current S.E.V. (state equalized value) on record.
-They are bringing out the big hammer.

Michigan State law says a 51+% transfer inside an LLC equals a change in ownership.
Ok.
My question is whether a Disregarded LLC is the same thing as a SMLLC or a Sub-S for these taxation purposes?

(I've already met with an attorney but am looking for a quick primer on this situation. Thx.)

[berettafan]

Fed tax does not have to reconcile with state laws in your situation. Your r/e tax cap has nothing to do with fed income tax rules.

[CalPersFatCat]

I don't think that there is anything you can do to prevent the county from reassessing the property.

To the best of my knowledge, The disregarded entity transfer (LLC to LLC) is simply to shield the purchase price from prying eyes.

[McLovin]

There are some things in your post that don't make sense, or I'm not understanding, but I think I agree with berettafan. An LLC being treated as a disregarded entity is a Fed tax issue.

You ask "My question is whether a Disregarded LLC is the same thing as a SMLLC or a Sub-S for these taxation purposes?" That's what doesn't make sense. A SMLLC is a disregarded entity for fed tax purposes.

Your dad's LLC was, according to your post a SMLLC. Which makes it a disregarded entity for fed tax purposes. In the absence of some Michigan-specific property tax statute, this seems to be not relevant, though.

You wrote "Michigan State law says a 51+% transfer inside an LLC equals a change in ownership."

That's true in most states. Otherwise there'd never be reassesments. But then you also wrote that Michigan does not reassess for transfers between family members (again not uncommon).

In your case, whatever the LLC machinations, at the end of the day, what happened was a transfer between family members.

If the City law is that transfers between family members don't trigger reassessment, you should be able to get this taken care of and avoid the reassessment. They should look to the substance of the transaction.

[john70t]

Originally Posted by McLovin

Your dad's LLC was, according to your post a SMLLC. Which makes it a disregarded entity for fed tax purposes. In the absence of some Michigan-specific property tax statute, this seems to be not relevant, though.

Thank you. I read into the definition a bit further, and of course federal law shouldn't apply here. The attorney asked if I was familiar with the terminology. I looked into it a bit on the internet but could not find Michigan-specific definitions.
It initially sounded like a Disregarded LLC was more akin to a single ownership than a real corporation. If so, then that might further my position.

It does look like the city is applying state laws over specific city laws.
(hmmm, heading 'em off at the pass?)

Originally Posted by McLovin

But then you also wrote that Michigan does not reassess for transfers between family members (again not uncommon).

I'm not sure about state, but this city does.

Originally Posted by McLovin

If the City law is that transfers between family members don't trigger reassessment, you should be able to get this taken care of and avoid the reassessment. They should look to the substance of the transaction.

Working on the paperwork to fight. Thanks for the advice! It's a bit less confusing now.

(LOL. I think I'm going to put my assets into an LLC who's members are several LLCs controlled by trusts. Continuous perpetuity of existence! Eat that tax collectors.)

[berettafan]

be careful you're not ducking a r/e tax only to pay an income tax because you didn't get a step up in basis at death.

no free lunch.

[john70t]

Excellent point. Holy $#@%.

The attny said "If I can save you money I'll take your case".
I didn't know what he meant at the time.

[McLovin]

Originally Posted by john70t

It does look like the city is applying state laws over specific city laws.
(hmmm, heading 'em off at the pass?)

I'm not sure about state, but this city does.

I typed State law but I meant city.

The state isn't typically a collector of property tax.

It's actually usually the county.

So it's not clear to me who you're dealing with. Is it the City that's reassessing and collecting the tax.

Finally, in your last post you wrote "I'm not sure about state, but this city does." Does that mean that your City (assuming that's the tax collector here) DOES reassess for transfers between family members?

Because if that's the case, this may be difficult.

Because, again, what most tax assessors do it "unwind" the corporate structures and transfers, to see what *really* happened, substantively, in the end.

What substantively happened here, from what I can tell, is the property owned by your father passed to you after his death.

If that would trigger a reassessment under your assessor's applicable law (City law, or whatever the applicable law is), then you're going to have a tough time not being reassessed, IMO.

If that would not trigger a reassess, you should be able to get out of it.

[john70t]

Originally Posted by McLovin

Does that mean that your City (assuming that's the tax collector here) DOES reassess for transfers between family members?

It is the city assessor's office I'm dealing with.
Next is the inbred city tax appeal's board. They always rubber-stamp denied in favor of their own outrageous over-assessments. Assessor told mom "you didn't pay enough". Then onto the state tax tribunal afterwards. Been down that road twice.

The good:
1). City does not reassess when transfer is between family members. New 2015 law.
2). The estate settled 2015.
3). Property in an LLC held in father's estate trust.
4). City waivered his Self->LLC->Self->LLC transfers near his end of life.
5). City admitted no transfers of merit occurred in his life.

Property tax increases are limited to a 1.0XX% multiplier each year.
They are rarely lowered (such as 2008-10).
The University does not pay taxes and is in the rental business.

The bad:
1). State says that a 51% L.L.C. change constitutes a new owner.
2). State says new members to a L.L.C. must be added while the original single member is still alive. I tried to get my name added, but there were interpersonal difficulties and frustrations I don't want to talk about on the internet. Dad wouldn't let me buy him out either beforehand.
3). City says new owner means uncapping.

It may be a spirit of the law vs. letter of the law.

I wasn't sure about the differences in the LLCs, and if they are considered the same -at the state level-.