Why an Online Seller May Desire an LLC for Protection

 

Why an Online Seller Should Consider an LLC

Transcript:

 

Jonathan: Hello, my name is Jonathan Barlow. I’m an attorney here at Clear Counsel Law Group. I actually had a friend that this question came from recently. She told me that she created an online store where she started to sell some little nick knacks, some little crafts that she had been creating. She had starting earning a little bit of money and then kind of … Some of her stuff went viral a little bit and she became very popular. She started making serious money. She asked me, “Do I need to think about creating a business? Do I need to think about creating an LLC or something like that to do my online business with?”

The answer to that question is maybe. It’s up to you. You don’t have to. There is no law that says you have to create an LLC to run your business. You can run it through yourself as an individual. That’s called a sole proprietorship. The business is treated just as you are. There’s no separation between you and the business.

The question of whether you should create an LLC really gets down to the question of accessing risks and rewards of the LLC. An LLC can give you asset protection. Meaning that is somebody had a dispute with the business and say they’ve got a court to tell the business that the business had to pay them money back on a judgment or something like that they would only be able to go after the assets that are in the business in order to pay that judgment. They wouldn’t be able to come after you individually.

 

online seller, small business, Nevada, LLC, Las Vegas

 

If you’re operating as a sole proprietorship there is no protection. Somebody that has a claim against the business could come after your personal assets. They could potentially get to your personal income. They could get to your personal bank accounts in order to pay a business related debt, because you didn’t have that business set up to create that separation.

A second consideration is more of a practical consideration when you’re doing this, which is often having an LLC gives a form or appearance of legitimacy as a business. People think they’re doing business with an actual business and they may want to … Make them more likely to do business with that person or with that business, rather than just an individual person. Those are some considerations you can think about in considering whether it’s time to transition from a sole proprietorship into an LLC. Brian do you have a question about this?

 

Brian: A quick question. Will it be expensive for the online seller to form an LLC?

 

Jonathan:  In the state of Nevada an LLC is not really that expensive to create. The main expense you have to pay is you have to pay the state of Nevada a filing fee to create the LLC. Then on each year, an annual basis, you have to file an annual filing fee with the state of Nevada, right now that’s a few hundred dollars on an annual basis to get that. To start it’s about $400 or $500. On an annual basis it’s about $200 to $250 to do that. It’s not terribly bad, so that’s another consideration. Is my revenue to the point that it justifies creating some more of these administrative type expenses that you’re going to have to pay. If you’re not making a ton of money it may not make sense to put money into an annual filing fee with the state, but if you’re making quite a big amount of money then that may be a very, very small percentage of your business operations and it makes sense to get that protection through the LLC.

If you have questions about your growing business, your growing online business and you’re finding it booming and you want to make sure that you’re protected and your business is protected give me a call here at Clear Counsel Law Group and I’ll answer your questions.

How is a Corporation a Nonprofit?

 

 

How the Government Determines is a Corporation is a Nonprofit

Transcript:

Hi my name is Jonathan Barlow. I’m an attorney here at Clear Council Law Group. I often have business clients ask me, “What makes a corporation a not for profit corporation or  nonprofit corporation?” The short answer to that is that you elect to be treated as a nonprofit corporation when you create the corporation with the state. The longer answer to that question is this: what makes a not for profit is simply as it says in it’s name. You operate the business without the intent to generate profit that is paid out to the owners of the business. In other words, if the business does make profit, that profit has to stay within the business. It can’t be passed out as distributions to the owners of the business. The owners are not profiting on the business of the corporation.

 

nonprofit, Nevada, Las Vegas, corporations

 

Now, a lot of people use not for profit corporations or nonprofit corporations in connection with a charitable entity or a charitable organization under the federal tax laws. These are sometimes called 501CS organizations. They are usually created for a charitable purpose. You create the not for profit corporation at the state level. You then obtain the 501CS status from the IRS. Together you’re able to operate a charitable entity. That’s basically the nuts and bolts of how you become a not for profit corporation and how that could be an advantage to people in that situation. If you have any questions about not for profit corporations feel free to give me a call here at Clear Council Law Group and I’ll do my best to answer those questions for you.

 

How Understanding a Series LLC Will Improve Your Real Estate Business

 

 

How Understanding a Series LLC is Necessary for a Real Estate Agent

Transcript:

Hi, my name is Jordan Flake, I’m an attorney with Clear Counsel Law Group. We do estate planning. We do a lot of work with realtors, and just one very, very specific tip for real estate agents that they may wish to consider is understanding what a series LLC is, and what it does. When I use the word series LLC, you may know a little bit about it, but what I really want is for that to trigger in your mind the following scenario. You may have an investor who owns various properties, and the way that those properties are titled are in his or her own name. Sit here and just imagine that person for a second, that client of yours who has Jane Smith, she has five properties that are all in the name of Jane Smith. That’s the client who needs to learn from you first, and then from us second as the attorney about what’s called a series LLC.

 

real estate agent, series LLC, estate planning, Nevada, Las Vegas

 

Essentially this type of LLC says that Jane Smith can take those properties and put them each in a separate, compartmentalized liability protected box similar to as if she created five LLC’s. Because it’s a series LLC, it’s really only one LLC, with five separate compartments. Think about who your investor client is, or who your friend or neighbor is who owns various properties in their own name, and then think about learning and telling them about the option of a series LLC. Hopefully, if their interested, they can meet with us, and we’ll do a free consultation to discuss the process for getting a series LLC set up properly. Reach out to me if this interests you, Jordan Flake, Clear Counsel Law Group, I look forward to hearing from you, thank you.

Is It Necessary to Register Your LLC in Multiple States?

 

 

When Should You Register Your Small Business in Multiple States?

Transcript:

Jonathan: Hello. My name is Jonathan Barlow. I’m a business law attorney here at Clear Counsel Law Group. A question that we recently received was this: If I have a Nevada LLC and I then do business in another set outside of Nevada, do I have to register in that other state as well?

The short answer to that question is yes, you should register in that other state. Now you can continue to keep the home state as Nevada and you would be treated as what’s called a foreign entity in the other state. Typically, if you’re doing business in another state, those state laws will require that those businesses also register with their state, and that therefore they can collect their filing fees and other things that they want from you in order to continue to do business. You could run afoul of the laws of those other states and face penalties, and interest, and problems like that if you fail to register in another state where you’re doing business.

 

Nevada, Las Vegas, register, LLC, small business

 

Now they’re may be exceptions to that rule in those other states. Of course if you go outside of the state of Nevada to do business, I strongly encourage you to talk to a competent attorney in those areas who can advise you specifically about those state requirements. Brian had a question about this.

 

Brian: A quick question. How much business do you have to do in another state before you need to consider registering in that state?

 

Jonathan: That’s a great question. How much business do you need to do? Again, each state’s going to have a different requirement. There may be different amounts of revenue levels before you have to register. There may be exceptions to registration. Nevada has certain businesses that don’t have to register with the state to do business in the state of Nevada. To give you a specific answer to that question, I can’t do that because it’s going to be state-specific depending on what state you go to. Again, you can set it up in Nevada, and Nevada have has very favorable laws related to LLCs and corporations. Makes it a good place to file for your home base, including no state income tax. If you do take your business outside of the state of Nevada, you can talk to me or other attorneys who would be able to advise you specifically about what you should do in that other state. If you have any questions about this, please feel free to to give us a call here at our office and we’ll answer your questions.

 

What You Need to Know about an LLC Operating Agreement

 

 

What to Know about an LLC Operating Agreement

Transcript:

Jonathan: Hello, my name is Jonathan Barlow. I’m a partner attorney at Clear Counsel Law Group. A question that I’m often asked by my business clients is, “What is an operating agreement and why is it important?” In short an operating agreement is the document in an LLC that regulates how the business is operated. It tells us how profits are distributed. It tells us the respective responsibilities of the owners of the business. It tells us who the managers are, it tells us what authorities the managers have in regard to the business. Do they have authorities to make major decisions? Does that require a higher level of decision making? It tells us what percentage the votes are taken at. Does it require a 75% vote to take the action? In other words, it regulates the internal affairs of the LLC.

Now, why is the operating agreement important? That’s a really good question and that goes to one of the main benefits of an LLC. Typically you want to set up an LLC to give yourself asset protection and that means that if the LLC incurs a debt or a liability and somebody sues the LLC they would not be able to come at you individually as an owner to get to your assets in order to pay that debt. It works the other way also. If you individually have a debt, say you hit somebody in the street, you owe somebody a whole bunch of money on a personal injury claim, and they come after you on payment on that. They cannot get to the assets that are held in the LLC in order to pay that debt. It creates a wall of separation or liability protection between those two.

 

LLC operating agreement, Nevada, Las Vegas

 

Why is an operating agreement important in that light? The operating agreement shows, or is one of the ways to show that we treat the LLC as if it is separate from us. We respect it as a business entity, we’re not treating it as just a natural extension of ourselves. By showing the operating agreement, we show, “Hey, we have legal documents that say we are a separate entity. We operate the business according to the operating agreement. We should be treated as a separate entity and therefore, we should have that benefit of the asset protection between the LLC and the individual owner’s.” Brian has a good question here.

 

Brian: Hypothetically, if I was operating, let’s call it Drum Circle LLC, and me and my hippie partners just want to have an oral operating agreement because we trust each other would that have any legal value?

 

Jonathan:  Okay. An oral operating agreement, I’ve never heard of that, but the concept makes sense. You can have an oral contract, just like any other contract. You can orally state this is how we’re going to operate the business. Yes, you can do that and you can have agreements amongst yourselves of what you’re going to do in certain circumstances with the business. Of course, that has dangers and risks, which are disputes about what the agreement was. If a dispute ever arose one person may say one thing and the other may say a different thing. It also becomes difficult as I was talking about when you need to prove that the LLC is separate from yourself. I would be difficult to prove the oral operating agreement. It’s much easier if you have a written paper copy of the operating agreement to show them and say, “Hey, here it is. Here’s our agreement, this is why we treat it as a separate entity.” Never the less, I suppose you could make arguments that no we did treat it as a separate entity and here’s evidence of our oral agreement about how we did that, but in any event I always advise clients to be as formal as possible in creating their LLC and operating the LLC.

If you want help to create your operating agreement or to review your operating agreement to make sure that it complies with good requirements and will give you that asset protection. I encourage to give me a call or any of our other attorney’s here at Clear Counsel Law Group and we’ll do the best we can to help you with that.

Protecting Your LLC: How to Transfer the Rights to a Family Member

 

 

Transfer Your Interest in an LLC to a Family Member

Transcript:

Jonathan: Hi, my name is Jonathan Barlow. I’m a partner attorney at Clear Counsel Law Group. We handle estate planning and we handle business planning. The question we have today that I’m going to answer blends these two areas in one question. The question is, how can I transfer an ownership interest in my LLC to a family member? There’s basically two times that you might think about a transform happening. One, while you’re alive, and two, after you pass away.

First, if you think about wanting to transfer an ownership interest while you’re alive, I highly recommend that you do this as formally as possible to make it very clear that you did both intend to transfer the interest and that you actually did transfer the interest. That can be done formally through a simple document. We call it an assignment of ownership interest. In that document, you simply recite that you are an owner of the business in such and such a percentage, and that you hereby or give such and such as percentage or amount to the person you want to give it to. Sign it, date it, have it notarized. That actually acts as a formal transfer of ownership interest. It formalizes it and makes it very clear what your intent was.

 

LLC, transfer, estate planning, Las Vegas, Nevada

 

After you pass away, if you have an intent to transfer the interest after you have died, you want to make sure you also do that very formally. You could that either in a will or in a trust. If you do it through your will you’re probably going to have to … or your family member will have to go through probate in order to get their interest in your business, which could delay the operation of the business while that process is happening. The best way to plan for an after-you-die transfer is through a trust.

In your trust, just like any other asset, you can specifically list 25% of my business or half of the business or all of the business to be transferred to my son John when I pass away. That can happen pretty easily and quickly after you die through the use of a trust. Those are the two best ways to do that and transfer those ownership interests. Brian has a question about this.

 

Brian: What happens to your LLC if it goes into probate?

 

Jonathan: That’s a good question. If the LLC, which becomes an asset of your estate when you die and in order to get it transferred out of your estate to whomever’s going to inherit it, it goes through probate, what happens to the business? That’s an interesting question. If there’s not already other business managers operating the business, if the person who passed away is the only manager, the personal representative or executor of the estate can be appointed with authority to continue the business of the LLC. The court would grant that person, the executor, authority to step in the shoes of the manager of the business and continue with the operations of the business while the probate is occurring until it is transferred out of the probate estate to the heirs.

That may or may not be a good idea. That’s also a reason why you want to think about using a trust to avoid that potential process. Because that executor may not have the business acumen that you would want them to have in order to operate your business. Thus again, using it through a trust allows you to be much more formal and specific about how you want that ownership interest to transfer, and the management interest as well. If you have questions about your LLC, about your ownership interests, how to transfer those, I encourage you to give me a call or any of the attorneys here at Clear Counsel Law Group, and we’ll do our best to answer your questions.

What Are the Record-keeping Requirements for an LLC?

 

 

How to Keep Records for Your LLC

Transcript:

Jonathan: Hi my name is Jonathan Barlow I’m a partner attorney at Clear Counsel Law Group. One of the main things that we do here is advise people about businesses and about operating their businesses. A lot of people in Nevada have an LLC for their business entity and they often ask me, “What are the record-keeping requirements for an LLC?” It’s a really important question for LLCs because that is actually one of the main differences or one of the best benefits of an LLC and a difference from a corporation. Under a corporation, you typically have to follow strict recordkeeping requirements which include holding an annual meeting of shareholders, holding an annual meeting of the board of directors and then keeping minutes and resolutions related to those meetings and you have to have those in your documents and books at the end of each year.

The LLC disposes with those requirements. You don’t have to do them. The LLC can do so if it wants to but it’s not required. So then, what are the recordkeeping requirements for an LLC? Best practices are to make sure that you’re keeping good books and accounts and records related to your financial dealings with the LLC. You need to be able to show that the LLC is treated differently from yourself and that you’re not co-mingling your personal assets with business assets, so you’re not paying personal expenses with business money so you need to make sure that you’re keeping good records related to your finances.

 

LLC, record-keeping, Nevada, Las Vegas,

 

It’s also important for an LLC to keep good records of who are the managers and members or owners of the LLC. Managers are those persons who are authorized to act on behalf of the LLC in a management capacity. You want to have good documents that reflect that. You also need to keep good track of who the owners of the LLC are and what their ownership percentages are. You want to keep a good membership log, make sure you’re keeping up to date on the percentages. Heaven forbid you ever have a dispute about who owns what with the LLC and you never documented it. So while the recordkeeping requirements are a little bit less with an LLC, it still is very important that you treat the LLC like a business, keep good records about your finances, about the members, about the managers, about the activities of the LLC so that you avoid any liabilities or problems down the road with the LLC.

We have a question from Brian who is also interested in business law.

 

Brian: What happens if you don’t … God forbid, they don’t follow your advice and you don’t keep these records. What will happen to you?

 

Jonathan: That’s a good question, Brian, and my clients always follow my advice to the T, I’m sure, but in the event that they didn’t follow my advice and they didn’t do some of these things, they did’t keep good financial records, they didn’t keep good record of who owns what with the LLC, that’s litigation waiting to happen. They’re waiting for someone to sue them and have a problem. The worst case scenario is with the financial records, if you can’t prove that you treated this business separately from yourself or if the financial records show that you paid your personal mortgage out of the business account or that you bought your groceries with the business account or that you’re mixing the money back and forth, the worst case scenario is that does what’s called pierces the veil. It allows a creditor to get into the L.LC to satisfy judgment against you. In other words, it makes all the assets of the L.LC available to somebody to whom you owe money potentially.

Also with records related to ownership percentage, again, if a dispute ever arose about who owns what in the L.LC and who has what percentage, it could become very difficult to prove what your percentage is and what their percentage is and it asks for a lot of litigation in court and expense in that. I encourage all my clients to make sure they keep up on those things, make sure they keep good records for their L.LC and if you have any questions about how to do that, how to run your L.LC properly, how to operate it properly, feel free to give me a call here at Clear Counsel Law Group and we’re always glad to help you.

What is the Difference Between an LLC and an S Corporation?

 

Is it Better to Organize as an LLC or an S Corporation?

Transcript:

Jonathan: Hello, I am Jonathan Barlow, I’m a partner attorney at Clear Counsel Law Group. We have many business clients who own small businesses or large businesses here in Nevada and often when they come in to see me to talk about opening their business or starting their business, they ask me, “What’s the best way to create the business?” Or “What corporate structure should they use?” Often, they ask me what’s the difference between an LLC and an S corporation, so let me answer that question for you. What’s the difference between an LLC and an S corporation?  An S corporation really deals with the tax code and how income is taxed under the tax code. In general, an S corporation will treat all income at the partner level. What that means is that the corporation, the business entity itself, doesn’t have to pay a tax when it receives a money. When the money comes out to the owners of the business as distribution of profit, that’s where the partners or the owners of the business are taxed at that level. It avoids the double taxation of traditional corporations.

 

LLC, S Corporation, Nevada, Las Vegas

 

Now a LLC can choose to be taxed like an S corporation. Even though it is an LLC, it can make an election and say, “We want to be taxed like an S corporation,” meaning flow the income down to the owners and the owners then pay the income tax. Alternatively an LLC can choose to be taxed as a partnership. So really it becomes a question of do you want to be taxed as a partnership or as an S corporation? That’s the main difference when dealing with an LLC or an S corporation. Typically most businesses will choose to simply choose to do business as an LLC because they have that option of either being treated as a partnership or an S corporation under the tax laws. Brian has a question about that as a small business owner himself.

 

Brian: Sure. Can you give an example of why a business might want to organize as an S corporation?

 

Jonathan: Sure. Typically you would want to organize as a corporation as opposed to an LLC, usually the main advantage is if you’re thinking about possibly going public at some point down the road, that is one of the main advantages, it’s easier to go public, meaning having your stock offered for public purchase on the stock exchanges, things like that. That’s typically when you’d want to choose to be an S corporation. Otherwise like I said, an LLC is more flexible, it has the same advantages of the S corporation because you can choose to be taxed like an S corporation, but you don’t have the same restrictions as a corporation does in its annual document requirements and things like that. Yes Brian?

 

Brian: If you are organized as an LLC, can you reorganize as an S corporation if you want to go public?

 

Jonathan: That’s an interesting question. Yes, that would require if you want to change to be able to go public, now an LLC could go public itself but there are things that have to happen, elections have to take place in order to change to an S corporation, the LLC can make an election with the state of Nevada and change its corporate status. There are filings that can be done to do that. If you’re thinking about starting your own business, wondering whether you should be an LLC, an S corporation, a C corporation, how you should structure your business and what’s the best for your business, I encourage you to give me a call at 702-476-5900 and I’ll answer any questions you might have about an LLC.

A Conversation Explaining How a Series LLC Will Protect Your Small Business

 

Why You Need to Reorganize Your Small Business into a Series LLC

Transcript:

(Editor’s note: Brian is Clear Counsel’s Communications Director. His prompts represent a conglomeration of inquiries submitted. If you have you have a question you would like answered in an upcoming video, email the inquiry to brian@clearcounsel.com)

 

Jonathan: Hello, my name is Johnathan Barlow. I’m a partner at Clear Counsel Law Group. Recently, this year, Google received a lot of press by announcing that they were reorganizing a parent company called Alphabet Inc., and that they were then going to essentially separate Google’s operations into separate subsidiary entities underneath Alphabet Inc.

I’m going to leave the reasons why Google did that to the talking heads, but let me explain some reasons why it makes sense to you, even as a small business, that may not be a multi-million dollar business, like Google, but a small business, would take advantage of this organizing into separate legal entities.

The most important reason why you might separate your business into separate businesses, is for asset protection. For instance, let’s think of a dentist’s office. The dentist has different aspects of their business that they might not think about. You have the actual practice of dentistry, the seeing of patients, billing patients for dental care. The dentist also owns a lot of equipment. He owns examination chairs, X-ray machines, a lot of equipment. He may also own his building where his office is located.

If you think about all three of those different aspects, each of those three could be separated into separate business entities to take advantage of asset protection between them. For instance, if he had a problem with one of his patients, and the patient began to look for collections against the dentist, the patient would be limited to the business receipts. They wouldn’t be able to take out the examination chairs. They wouldn’t be able to put a lien against the building. It becomes beneficial to separate these assets into different business entities.

There’s some interesting other techniques about this, and I think Brian, one of our readers here, has some questions about that. Brian, could I answer a question for you regarding that?

 

Brian: Sure. There’s some confusion as to if a single individual could create multiple companies under a series LLC. Wouldn’t they just look at all these LLCs, and go, “This is just one person.” Is that really going to work?

 

Johnathan: You’ve actually brought up a really good magic word, so to speak, in Nevada. Nevada has this fascinating technique, or business entity, called a series LLC. What it does is that, with the state of Nevada, you create one LLC, just one with the state, but under that LLC, you then create separate series, and you could have series one, series two, series three, series four, and so let’s use the example of the dentist.

 

series LLC, corporations, nevada

 

He’s going to create Dentist LLC, and in series one, he’ll put his business practice. In series two he puts his dental equipment. In series three he puts the ownership of the office building. Each of those series is treated as if it was a separate LLC with asset protection between each one, and yes, one single owner can do that and take advantage of the effect of having different business entities, but using just one LLC through the different series. Does that answer that question a little bit?

 

Brian: It does. I have another question if that’s okay?

 

Johnathan: Go for it.

 

Brian: How many of these series LLCs am I allowed to have? Is there a cap?

 

Johnathan: If you create one series LLC, how many different series could you have underneath that, is that …

 

Brian: Correct. Yes.

 

Johnathan: The statute in Nevada doesn’t define that answer. The statute doesn’t say you can only create 10 series, so theoretically, until somebody tells us otherwise, you can create as many series as you want, and they don’t all have to even be related to each other.

Again, talking about the dentist, he may have three series to go with those three aspects of his dental practice, and series four actually could be his investment property that he owns, that he rents out to Brian, to you Brian.

 

Brian: Big mistake.

 

Johnathan: It would probably be a big mistake to have you as a tenant, but let’s assume that we don’t you, when you fall down the stairs, for the purpose of suing the dentist, we don’t want you getting into his dental assets, and so that’s why we separate these liabilities between the different LLCs.

Even a small business in Nevada can take advantage of these really powerful techniques to separate liability, separate assets between different business entities, using a series LLC, or you can use different LLCs, whatever works best for you. Nevada has this really unique tool of using the series LLC. It’s very flexible, and it’s an awesome tool. It can be used by all Nevada business entities.

For more information on this, I encourage you to go to our blog on clearcounsel.com and read more about the series LLC, and about the Alphabet Inc. analysis, when Google transferred to that.

FIRPTA, real estate, investment property, nevada

Understanding FIRPTA is a Must if You Invest in Property

There are so many things to be concerned with when purchasing a house: Did I get a good price? Will I be able to afford the mortgage? Will the home inspection find all of the problems? Are the schools good? Are the neighbors nice? And so on.

But one thing people likely never think about is: “Am I complying with FIRPTA regulations?” Well you should think about it, and here’s why: A buyer who does not follow FIRPTA regulations can end up having to pay the seller’s capital gains tax!

 

Yikes, You have my attention. Now tell me, what is FIRPTA?

FIRPTA stands for the “Foreign Investment in Real Property Tax Act” and has been the law since 1980. This law was designed to ensure that foreign persons pay taxes when selling or transferring property interests in the United States. The amount of tax owed depends on various factors, including who the seller is and the amount of profit realized from the transaction.

FIRPTA applies to any ownership interest held by a foreign person. The definition of property in the FIRPTA regulation is broad and includes but is not limited to: land, homes, buildings, trailers, natural products attached to the land,1)i.e. mineral rights and other personal property connected with real property. The tax can also apply to interests in corporations that own property, which must be looked at on a case by case basis.

Generally, it is not necessary to know too many details about whom you are buying a home or property from as long you have a good real estate agent working for you. However, for purposes of FIRPTA, you do need to know. This is because FIRPTA puts the burden on the person buying the home or property to comply with the laws even though the tax liability is placed on the seller.

As such, the buyer is required to withhold sufficient monies to pay the FIRPTA tax owed by the foreign seller. The buyer of any property that is owned by a foreign seller must withhold 10% of the sale price or the transfer value to have available for payment of the taxes. A good escrow company will assist buyers and their agents with the mechanics of setting aside the money prior to payment of the taxes on or after the closing of the sale.

 

When you may be exempted from FIRPTA

The withholding is almost always required for the purchaser of FIRPTA covered property with a few of the exceptions:

  1. When a buyer is purchasing a primary residence for less than $300,000.00;
  2. when a buyer receives written assurance from a seller that the seller is not a foreign person;
  3. when you receive certification from the seller that they are not making a profit on the sale; and
  4. you receive a letter from the IRS that you do not have to withhold.

Furthermore, there are several exceptions where a buyer does not have to withhold because the property being disposed of is an interest in a domestic corporation that meets certain qualifications.

If you, as a buyer, think that you are exempt from withholding, always make sure the seller certifies in writing the reason s/he they are exempt. And be diligent in protecting yourself and make sure that the exemption is correct and proper. If a buyer does not withhold taxes, and the taxes go unpaid, the buyer will have to pay the taxes owed on the sale. This is an awfully big price to pay for innocent buyer.

If you have any reason to believe the seller is being dishonest about their exempt status, you should withhold because if they do not pay the tax, you are again on the hook. No harm in being pleasantly surprised after the fact.

But, if there is any doubt about an exemption, it is best to get an attorney involved. Even real estate agents can be held liable if they know the claimed exemption is false and may be held to have to pay the taxes up to the amount of the commission earned on the transaction.

As always, tax regulations are lengthy and complicated. If you have questions about FIRPTA as a buyer, agent, or seller, Clear Counsel is here to help. Our lawyers will analyze the legal implications specific to your transactions and can recommend real estate agents and escrow companies that are best suited to your needs.

As always, we offer a free consultation.

Footnotes   [ + ]

1. i.e. mineral rights
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