All Forum Posts by: Karolis Matulis

We typically employ Family Limited Partnerships for our estate planning strategies for high net-worth individuals who want to minimize the impact to their lifetime exclusion. Short synopsis: 

• Family limited partnership is established by the current owners of the property.
• Current owners contribute the property into the partnership.
• Appraisal is done for the property (ex. appraises at $2,000,000)
• A valuation report is done for the partnership for a 1% interest (as of December 31, 2017). Valuation report introduces the concept of discounts (lack of marketability and control). Because of the discounts a 1% interest in the partnership (and by extension property) is now worth $14,000 rather than $20,000. 
• On December 31, 2017 the owner and spouse can each gift 1% to whoever they want without impacting their lifetime exclusion. 
• On January 1, 2018 the owner and spouse can once again gift another 1% to whoever they want as it takes places in a different tax year. 
• Depending on the amount of recipients and overall value of the property this can be a very useful strategy. 

I'm not familiar with MA sales tax laws but sales tax exemptions are generally applicable in instances where you are not the end user of the product. The sales tax burden falls on the end-user. If you are in the business of buying and selling widgets you can get an exemption from sales tax on the purchase of the widget. The end buyer will ultimately pay the sales tax on the purchase. 

In the manufacturing world ingredients or components are not taxed because sales tax will be collected when the end-product is sold. As the sale of homes is not subject to sales tax, I don't see the potential for a sales tax exemption. My knowledge of sales tax is limited to NJ, so it is possible that there may be some slight nuances in MA. I hope this helps. 

It is generally a function of firm size and billing strategy etc. An engagement letter you signed should list per hour charge rates for any work done by the CPA. CPAs, attorneys etc do not make anything tangible, we do not put in sinks. Our product is measured in the amount of time we spend, thinking, researching, interacting with a client, etc. It is understandable that your CPA may try to bill you for the time he spent on "templates".

All that being said it is often not the best business practice to charge clients by "phone conversation" etc. This ultimately comes down to firm size and strategy. Many firms will do returns for a fixed fee if the engagement does not end up having out of scope work (work that the CPA was not aware of prior to the engagement [things such as excessive cleanup work as Natalie mentioned]). Firms should communicate any issues when they encounter them and the client should be honest about the quality of their records. 

In your case there is no harm in shopping around for a firm that matches your needs as far as size, expertise and billing structure is concerned.

You have a choice of a partnership or an s-corp in multi-member LLC scenarios. The choice depends on the type of activity the LLC will be doing. Pure rental property LLCs are best treated as partnerships.

I have a contact CPA who specializes with US/India foreign tax issues. I can get you in touch with him. 

 That is a very loaded question. It really depends on the property. You have to walk thru the property and evaluate the individual depreciable components. Since the remodel was done in 2014 it is possible that you may be able to get some benefit out of a cost seg if there are a lot of 5 year assets (mostly furniture/equipment and fixtures) that were put in at the time. If the building is mostly bare and only has structural components with 27.5 year asset lives there is likely little to no benefit. 

Make sure that both the attorney and CPA are working closely together. It is common to see operating agreements that are written by attorneys in a manner that violates the substantive economic effect tests. The CPA you engage needs to have a good understanding of these rules and preferably have experience handling these tax credit deals (it is a portion of the revenue code that is a bit less understood). 

This is a popular strategy with some bigger developments and I have seen it used to great success by a group of clients. I was not involved in the planning and drafting process for these arrangements so I cannot comment much on the specifics. 

My expectation would be that while there is a great degree of freedom in the allocation of income/deductions/credits the entire plan and operating agreement needs to be in conformance with the substantive economic effect tests (or relevant exceptions). Great amount of planning needs to go into it as negotiations need to be mindful of what kind of allocations are allowable or exempted by the code. 

You can have the LLC income/expenses reported on your 1040 return as a disregarded entity. There is a lot of flexibility in terms of what you can do with an LLC. An LLC is a legal construct for liability protection, from the tax perspective you can mold it into whatever your application is.

The downsides are the state registration fees and any associated annual maintenance fees. Most states have some form of expense associated with it annually (they are often small). NJ for example has a $50 annual report fee. NY has an annual filing requirement for a specific tax form due every February with a minimum fee of $25. 

Dave and Rob bring up a lot of good points. From my personal experience in the realm of tax compliance, I typically see TICs employed in matters involving estate planning or closely held (family) owned ventures. It is very rare to come across a TIC as an investment tool for properties owned by unrelated parties.