All Forum Posts by: Rob C.

@Greg O'Brien, I follow that the RLT would be disregarded for *income tax* purposes. Are you suggesting though that because the RLT is disregarded that any LLC underneath it in this structure would be subject to the *franchise tax*? If so, where are you getting that from? From a purely logical perspective I don't see how that would make sense; i.e. by logical extension that would mean all LLCs set up as disregarded entities avoid the franchise tax (LLC = "you under all tax laws")

@Lynnette E. - get caught breaking what rule(s) specifically? Have you viewed the links I’ve included above to the tax code, and FTB’s interpretation thereof- are you able to point to anything in that tax law (or even FTB’s interpretation) that shows a California resident would be breaking the rules if they don’t send $800 to the FTB for managing an out-of-state trust, which in turn manages an out-of-state LLC, which in turn manages out-of state property? Or, are there any other sections of the tax code, FTB publications, or case law you can point us to that have shaped your opinion?

Thanks for the follow-ups @Greg O'Brien and @Lynnette E.. The trusts I’ve heard suggested are revocable living trusts and personal property trusts. My understanding is that they would fall under the grantor, revocable trust classification, and therefore wouldn’t have any bearing on taxes as Greg describes. I will doublecheck on this part though. Greg, I appreciate you pointing out the differences between the two.

Where did you see that trusts (or at least grantor, revocable trusts) were subject to the franchise tax fee? Everything I’ve read only points to the franchise tax being assessed on the corporate entities as shown in Appendix 3 on this page https://www.ftb.ca.gov/forms/m... 

@Lynnette E., when you say trusts pay taxes in CA also, are you referring to income tax? franchise tax? both?

Thanks for weighing in @Saleh Riazi. Which part of the law are you referring to? Is it part of RTC 23101, which I linked to above? Or a different section altogether? 

Also, 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.

Thanks for the heads up @Greg O'Brien. I was under the impression from the advisor I spoke with that it could be set up in a way that is pass-through so all the rental activity goes to Schedule E on my personal return. Do you disagree?  

@Brandon Sturgill, the post you shared is consistent with many opinions I’ve heard and read. However, the more I learn the more I become convinced that may just be a common misconception that’s not entirely true. When discussing this matter with an advisor he pointed me to this link to show how the law defines "doing business in California": https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=23101&lawCode=RTC. Is there anything in that (or the rest of the law for that matter) to suggest an out-of-state LLC holding out-of-state rental property is doing business in California just because its member/manager manages the business from California?

The closest thing I've found that relates to that perspective is the "Doing Business in California" section on this page : https://www.ftb.ca.gov/forms/misc/3556.html#Doing-Business-in-California . We can debate later perhaps on whether the FTB's interpretation of the law here is even constitutional and/or would stand up in court (similar to how the prior post diverged), but let's assume it is just for sake of advancing the discussion; in that case I could understand why someone might say that a California resident acting as a member/manager of an out-of-state LLC results in an $800 minimum franchise tax. However, if we instead make the member/manager an out of state trust with the California resident as either its trustee or beneficiary, on what grounds could the FTB try to collect any franchise tax in that case?

By the way, I didn't think of this structure by myself. It was suggested to me by the aforementioned advisor. I'm just trying to find any flaws in it before I consider adopting it for my business. Are there any? So far I've come up empty.

This was actually a topic of discussion in a post that was recently removed, presumably because the OP appeared to be selling something. It's a shame that the rest of the conversation was taken down with it, so I figured I would start a new thread on this particular topic, and invite those that had been previously involved or mentioned in the discussion:
@Christopher Smith , @Greg O'Brien , @Eamonn McElroy , @Basit Siddiqi , @Michael Plaks, @Katie Lepore and @Brian Schmelzlen 

This topic is just in regard to California residents with properties *outside* of California. Assume a California resident sets up an out-of-state trust, which in turn is the only member (and manager) of an out-of-state LLC that holds out-of-state rental property. Is there any reason to believe that the California taxpayer in this case will be required to pay the annual $800 minimum franchise tax to California?

There is so much mixed information out there on the CA franchise tax, so it would be really helpful if folks could weigh in along with any authoritative sources of information, e.g. tax code / legislation, previous court cases, or even FTB publications. I've read through quite a bit of those sources myself and have yet to find anything suggesting that the minimum franchise tax would be assessed on this kind of entity structure. And no one I've spoken to has been able to offer a compelling argument otherwise. Yet many on BP have claimed in other threads that there’s no getting around it as a California resident. Obvious disclaimer: I'm not an attorney or accountant. I'm just a dude with an inclination to sort through mixed messages until I get the story straight. And I fully admit I could be missing something- am I?  

@Vincent Carminati, did you end up selecting Specialized Atlanta as your property manager? If so, I hope you will keep us updated on your experience with them. They have very good google reviews, but “Specialized Property Management” (i.e. the parent company if I’m not mistaken) has very bad yelp reviews. Seems a bit fishy

I also recently came across a company that seems too good to be true called ”Atlanta Property Management Group” (https://www.atlantapropertyman... ). I’m planning to speak with the broker in the coming days and intend to ask for references, but would love to hear also if anyone here from the BP community has had any experience with them.