All Forum Posts by: Naseer Khan

@Tim W. Shan K is correct in that your CA residency will deem you to be "conducting business in California" based on the Franchise Tax Board's (FTB) broad meaning of "conducting business."  Here is an example from the FTB guidebook:

Nick is a California resident and a member of a Nevada LLC. The Nevada LLC owns property in Nevada. The LLC hires a Nevada management company to collect rents and provide maintenance. Nick has the right to hire and fire the management company. He occasionally has telephone discussions from California with the management company in Nevada regarding the property. He is ultimately responsible for the property and oversees the management company. Nick is considered to be conducting business in California on behalf of the LLC. The LLC must file Form 568 and pay the franchise tax. (FTB 3556 LLC MEO (REV 01-2015).)

So in your situation, you can establish an LLC in Ohio but you will have to file as a foreign LLC in California (or vice versa). Either way, you are on the hook for fees from both states.

This response neither constitutes legal or tax advice nor establishes an attorney-client relationship. Inquirers must seek the advice of their own legal counsel prior to undertaking any course of action related to this inquiry.

@Pratish Halady I believe your situation is akin to Scott McMillan above - you will not be deemed a California resident but you will be required to pay CA taxes on your CA sourced income (i.e. the rental income). 

@Shawn Chase I believe that the way it works is that the $10,000 "loss" merely reduces the amount realized and does not provide you with a deductible loss. You would subtract the adjusted cost basis ($70,000) from the amount realized ($90,000) and you end up with a deprecation recapture income of $20,000 taxed at the rate of 25%. The $2,000 capital loss from the previous year can offset your ordinary income since you are allowed to convert up to $3,000 of capital loss into ordinary loss every year. 

I am not an accountant so this not financial or legal advice but this is how I interpret it.  

@Lauren A. This depends on how you have your current statement of information with the SOS. If your LLC is managed by a manger (vs. member managed) and you are the manager, then you do not need to change anything. However, if it is member managed, then you should change the Statement of information. You do not have to do it right away, you can wait until your reporting requirement comes due (every 2 years) but it might be a good idea to do it sooner.

I should have mentioned that you should amend your Operating Agreement to reflect the change in ownership as well. This is not filed with the SOS but is for your personal records. 

Thank you @Chris Mason. 

@Luis Velasco - Feel free to message me about your inquiry and I can provide you with a consultation. Thanks 

@Lauren A. If the transfer of ownership results in a change in controlling ownership (i.e. transferring more than 50% interest to someone) AND the entity owned California Real Property, then you must file BOE-100-B, Statement of Change in Control and Ownership of Legal Entities. 

Change in Control—R&TC 64(c)—"A change in control occurs when any person or legal entity obtains more than 50 percent of the ownership interest in a legal entity..." Link to form: https://www.boe.ca.gov/proptaxes/pdf/boe100b.pdf

If the LLC did not own any real property, then you can change the ownership by amending your statement of information (form LLC-12) with the Secretary of State. Generally this form is filed with the SOS every 2 years but you can amend sooner if there is a change.

Also, be careful of any tax consequences that your husband may incur if the LLC interest that he is transferring is worth anything.

This response neither constitutes legal or tax advice nor establishes an attorney-client relationship. Inquirers must seek the advice of their own legal counsel prior to undertaking any course of action related to this inquiry.

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