All Forum Posts by: Greg Boots

John Hyre's article is an excellent exploration into the different nuances that the IRS will look for on an audit in determining dealer status. Remember, the burden is upon you to prove that you are not a dealer.

I wrote a blog for the site a couple of months ago on the same topic:

http://www.biggerpockets.com/renewsblog/2009/03/04/wholesale-transactions-avoiding-dealer-classification/


However, my blog did not go into the depth as John did in his article.

Great post Allen, thanks.

Josh and WIll,

Thanks for the great feedback!

Joseph,

Since the LLC will be filed with and approved by Secretary of State you do not need to puclish notice.

Joe,

This strategy would certainly work if we were looking to protect liquid assets (stocks, bonds, cds, etc.) that really exist in cyber space. Unlike real estate activity with these other investments there is not a direct connnection with California.

A holding LLC is an excellent option when you are involved in real estate transactions in California. The Calfiornia LLCs are the enitites that are conducting business in California in the State, the Nevada LLC simply holds the membership interest (ownership) of those LLCs and is not doing business in California and thus does not have to file a foreign entity and be subject to the California Franchise Tax.

Joe,

The LLC insulates you from the activities associated with property. This is known as inside liability protection. The harm that occurs on the property will not bleed out to the members of the LLC.

An umbrella policy is good to have but it is not a subsitute for an LLC or any other business entity.

George,

Since the LLC is not in good standing with the Secretary of State I would interact with the member on an individual level. Since you are on notice that the LLC is not in good standing you would be placed in an unfortunate position in terms of legal remedies if the transaction goes south.
Two options: (1) Have the member bring the LLC back in good standing with the State and then purchase from the LLC. (2) Have the member distribute the property back in his or her own name and then purchase directly from that person.

Goldfish,

If you set up the LLC with your husband as a 40% member with only a 5% capital contribution you will definitely have some potential gift tax issues. There is plenty of case law that your account should look into where parents create LLCs with their children and a taxable gift occurs when the property is transfered into the LLC because the child's equity interest in the LLC exceeds his or her capital contirubtion.

One way to help avoid this consequence is to initially have your husband as a 5% member and then his father can begin to gift him units in the LLC on an annual basis. You husband may also contribute services to the LLC but be sure to properly value the services being contributed.

Greg

Hi Bryan,

It's good to have you on the site. There is plent of great information in the forums on rehabs and flipping properties.

To your success.

Greg

Nick,

Welcome to bigger pockets. There is excellent information here to help you take your knowledge to the next level. You may also want to look into some local investing clubs. There are always opportunities for people who are willing to learn and work hard.

To you success.

Dave,

It's good to have you on the site. I grew up in the construction industry. Your construction knowledge will be a life saver when it comes to investing.

To your success.

Greg