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Damien Bosco
Damien Bosco, Attorney
Category: Business Law
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Experience:  Helping you with your legal questions.
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Hello! I have a small businesses (partnership) in California.

Resolved Question:

Hello!

I have a small businesses (partnership) in California. During 2008-2009, the employee in charge of accounting had erroneously been cutting checks to company owners within the payroll software, inadvertently and incorrectly inflating the amount of employee withholding tax we need to remit to the State of California.

To date, this has not been resolved, and last year I received a notice of a personal lien against real property.

I currently own no real property. However...

...other members of my extended family, including my father, are members of an LLC that owns a few million dollars worth of real property in San Diego.

Within a few months, my father plans to break his ownership into four pieces, and transfer one to each of his children. My effective ownership would become 12.5% of the total LLC.

I need to assess this situation well. Would the lien apply, because the LLC is legally a separate entity from me, personally? Or will this move trigger the lien?

I'm sure I have some follow-up questions, too.

Thank you!
Submitted: 1 year ago.
Category: Business Law
Expert:  Damien Bosco replied 1 year ago.
Hi and Welcome! My name is XXXXX XXXXX will be assisting you. I am happy to help you. I understand that there is an state tax lien against you personally and against any real property you have. First, interest in an LLC is not real property. However, I would review the lien to make sure it does not affect your other assets besides real property. Also, it is always recommended to pay off tax liens because it can haunt you continuously. Also, you would not want be accused of fraudulent transfer of assets or other sort of claims. In any event, many times the person who is distributing assets (like shares of an LLC) puts the assets into a trust for protection against the beneficiary's creditors but for the benefit of the beneficiary. So proper estate planning for your father would be necessary. Whether or not the moneys in the trust are subject to creditors and tax liens depends on how the trust is structured. It is quite complicated and the advise is to get a local attorney familiar with the issued involved. I hope this helps you. Regards, Damien
Customer: replied 1 year ago.

Thanks for your time, Damien! However, there is only one sentence in your reply that truly addressed my question, and that was "interest in an LLC is not real property". That helps. Are there any exceptions?


 


For more info: the lien is only real property, and I do not wish to pay it because we don't owe it. So far, California seems both disinterested in correcting the problem or pursuing collection. They issued the lien, and have since been silent. That could all change if they become aware of the LLC interest, so I take your advice to heart.


 


My dad's shares are already in a trust. He is splitting them up--and giving us ownership interest directly--due to the Jarvis Act of 197? in San Diego. The properties are currently taxed at a rate frozen in the 70's. That rate remains frozen until a) either the Jarvis Act is repealed, or B) more than 50% ownership in the LLC is transferred.


 


If my dad were to die, the current inheritance trust structure would trigger a 50% change in ownership, and put the company a light breeze away from a major increase in property taxes. However, there is a parent-to-child exemption. So he is proactively transferring ownership to us directly (by including us in the LLC).


 


With this additional info...can you see any other vulnerabilities the State of CA might exploit that we haven't already discussed?


 


 

Expert:  Damien Bosco replied 1 year ago.
Hi Michael: Thank you for the additional information. I thought of a possible concern with regard to the LLC. Possibly the state could "look through" the LLC to the real property. But this would require extensive research of case law to support this position that goes beyond this site. This may be a far stretch and not be supported by any case law, but I wanted to attempt to get to a possible worse case scenario. Sometimes a person cannot avoid creditors by placing property in an LLC that they solely own. But in your case the LLC would be owned by a multiple of people. I hope this helps. If you want me to opt out to see if another expert can help you more, let me know. Regards, Damien
Customer: replied 1 year ago.

Thanks, XXXXX XXXXX do need to drill this issue down a bit. I appreciate your time and answers, but do feel this question may need an expert whose wheelhouse is LLC ownership of real estate.


 


Do you know how I can pay for your help without closing out this ticket?


 


Michael

Expert:  Damien Bosco replied 1 year ago.
Hi Michael: You can provide a positive rating (a smiley face or 3-5 stars) so I can get credit for helping you. I can opt out of the question and it will remain open. Thanks, Damien
Damien Bosco, Attorney
Category: Business Law
Satisfied Customers: 1215
Experience: Helping you with your legal questions.
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