U9 – PMA & Residency & Tax/Withholding Liability on Sale
0:01
Hi everybody. This is John Jay and I wanted to cover something.
0:05
It was it’s an example use of a private membership association that owns a limited liability company and I’m going to show you over time different specific applications. Now this example I’m going to show you just came up.
0:19
It wasn’t something that any one of us had planned for, but it shows you what the versatility that you can have using this type of structure. And again, I want to remind you that just because I like to use a PMA, doesn’t mean you can’t use something else, but the same concept.
0:33
So, just follow along, OK.
0:34
So, the first concept is: that residency creates eligibility under the statute. Residency, generally, I’m talking about residency in a state.
0:47
If I, if I live somewhere for more than six months, I’m considered a resident there, if I, if, even if I’m renting something and my name is not on the property.
0:58
If I leave that location, and I go to another state, on vacation for a week, I’m not, I don’t become a resident of that particular location in the other state, because I’m just basically, I’m temporary. I’m a tourist, OK?
1:13
So, Residency is established a lot of times by public records, but also by what you do, and also buy what you’re eligible for.
1:22
So, a resident of a state is eligible to pay taxes, so, Well, that’s why I say, Residency creates eligibility, but then eligibility does create liability, So here’s a slick way that this can work in your advantage.
1:38
In this example, a person has a limited liability company in a state.
1:45
Outside of the state where the limited liability company owns real estate.
1:51
So, the real estate is situated in a place where the limited liability company is not registered, it’s a, it’s a foreign LLC by definition.
2:02
All right, so I’m gonna pop back and forth between some screens that I’m going to show you, goes on with the title company.
2:09
Because what’s happening is, the title company is trying to identify residents or non residents having as having certain types of liabilities or tax liability.
2:21
Now, I don’t care about a tax liability.
2:24
All I’m trying to do in this example here is move A 10 99 report to a pass through entity. So it is not in my name.
2:35
And I’m also trying to avoid withholding of taxes.
2:40
So, if you know, if I can avoid withholding, then I don’t have to file a return and try to rectify that and so forth.
2:47
So the first example here, this is, this happens to be, you know, Wisconsin realtors association. Notice how it’s an association, OK? The association is trying to identify and create possibly a tax liability for somebody.
3:01
So, let me just do a share screen here.
3:09
OK.
3:12
I’ve got about four files to share with you.
3:14
So what we’re looking at here is the what’s called the seller certification of non foran status.
3:21
So a foreign status of a seller of real estate would likely require it leads to withholding if not a tax situation.
3:32
So if a foreign LLC to a state where property is situated is selling the property in that state, there’s a there’s a different kind of tax, OK so if you’ll see here, you’re going to make a certification, that’s what they want you to do because that transfers the liability onto you.
3:49
So we want to look at what conditions they’re trying to discover if the seller is a foreign person, OK.
3:57
We’re saying that it’s not a foreign person. Now, here’s what’s interesting.
4:02
The limited liability company is a foreign person and it does own the property.
4:07
But think, think this through. We’re gonna, we’re gonna get to the form here in just a second, but that shows this.
4:13
The determination of foreign status can be established with the owner of the LLC.
4:22
If we’re using the LLC as a disregarded entity, we can say it’s a disregarded entity or we can say it’s something else. We can use it however you want. In this particular situation, we can simply say it’s a disregarded entity by whatever rules standards apply here. I don’t really care what they are, because it’s going to be called. It’s going to be regarded as a disregarded entity and anybody that looks at this, these records is going to agree.
4:45
So you’re not there’s no trick here, OK.
4:48
The seller’s address I like to use a local address for my foreign person.
4:56
So, again, it’s a foreign LLC, but I’m going to use the property address as the address of the LLC.
5:02
I don’t have to I’m just going to do it that way.
5:07
They may report to the IRS, whoop, Dee Doo.
5:10
And, of course, they want to scare you with penalties of perjury. We always want to tell the truth, OK?
5:14
So this is the title company who’s trying to get your certification, your promise.
5:21
It’s a foreign person or not, who is selling the property, they, they refer to the seller as the transfer, or, OK, now I’m gonna, I’m gonna get out of here, and I’m going to take you to, another example, an additional form that may come your way in a closing or real estate closing.
5:43
All right. When get ahold of my cursor, here we go, all right.
5:47
Now, this, or here we go. This is.
5:54
Here we go. You can see it’s first American. It just happens to be all title companies are pretty much going to do this.
6:00
See, it says here.
6:01
It’s going to give the form two to the iris give form to requester. So somebody’s telling the title company to do this.
6:09
Don’t send this to the IRS.
6:11
This just looks like, see, look at this. It looks like an official government form, doesn’t it?
6:16
Does it look like your W nine?
6:22
This is pretty slick.
6:23
Somebody altered this form to make it look like an official form so they can collect data.
6:28
So people will be inclined induced into filling out this form. So be careful here. Look at the top.
6:35
Look what we got.
6:36
Since when does the government, it included the emblem of a private business on its data collection forms.
6:44
this is not a government form.
6:46
it used to be possibly it’s been altered.
6:50
The reason why this is important is because this form is not approved by the Office of Management and Budget. It’s not an official form. It cannot be used to collect information That is then remitted to the government unless you agree to it.
7:02
And this is being requested through a private party. So everybody’s off the hook.
7:05
And if you don’t know what you’re doing, so never never, in my opinion, I don’t think you should ever sign a form where it’s a private data intake collection form, where it’s under penalties of perjury.
7:20
OK, don’t do that, and I’ll explain how to deal with this, alright?
7:24
But if you’ll notice, they’re talking about disregarded entity.
7:29
Now how do we get to this form? I’m going to show you another.
7:32
I’m going to pop out of here again.
7:35
And I’m going to show you kind of how we arrived at receiving this from the title company.
7:43
I know this may seem tedious, but, so this kind of system wherein.
7:49
All right, Now, this was received first.
7:54
Yeah.
7:57
Next slide, this over here.
8:00
I don’t like to look sideways, OK, I see it’s form, OR 18.
8:05
OR is Oregon, Revised Statutes or Oregon, something.
8:10
Oregon real property.
8:12
So you’ll notice that one of these is from Wisconsin.
8:14
one is from the American title, one is from Oregon, it doesn’t matter.
8:18
You’re gonna have similar things go on, but they’re all going under a particular statute, the statute has the same language if they wanted to determine if the seller of the property is foreign a foreign person and then it’s either going to withhold taxes or it’s going to send you a tax bill, OK.
8:35
We’re going to avoid both situations.
8:38
So again it’s asking for the transfers information. So here’s how we have this setup lambertson LLC that’s foreign to where the property the real estate is situated and it’s owned by a private membership association.
8:50
So the private membership association can have residency anywhere. It depends on what you do because you’re the boss, right?
8:56
You signed for the PMA, so for all anybody cares it’s a resident where the property is situated so the beneficial interests reside with the owner of the LLC in the state or jurisdiction where the property is situated.
9:12
That makes the transaction being undertaken by a resident.
9:17
So this is why we get into this it’s information here.
9:21
See, this form is for a non resident individual.
9:27
Well, if I don’t understand what I’m doing, well, I’m gonna look at my LLC and say, yeah, that’s an organized in a different state, so therefore, it must be a non resident individual. It’s not registered with the state where the property is located.
9:37
Wrong.
9:38
Because we’re going to treat the LLC as a disregarded entity, which means the residencies established by the PNA and what determines its residency you do, by what you do by what you say.
9:51
If you needed some documentary evidence, you can just create that as needed. It’s not fraud. This is just how things are done.
9:58
Um, by the way, when you declare residency somewhere, the moment you declare it in the public, you’re a resident there.
10:07
This is just standard, standard, law firm, for years, and years, and years, it’s always been that way. You can do it formally with a public record, you can do it verbally, you just announce it to the public. All right?
10:17
This form is not the proper form for my owner, OK? Of the property.
10:23
Same thing here, it is not a C corp, So none of these conditions apply, be careful.
10:31
You scroll down here.
10:34
Notice got all these parts, Part D, Part E.
10:39
And look at the bottom.
10:41
you get a sign under penalty of perjury.
10:43
Not this form does not apply to the seller or the transfer, or you are not to sign this.
10:48
You have to remember you have to be diligent just because someone gives you a form to fill out.
10:54
Don’t just sign it, don’t be intimidated either. These people cannot tell you how to manage risk.
11:00
And I’ll explain how we communicate that, because I have a cover letter that spells all this out.
11:05
So.
11:08
These forms don’t apply.
11:11
The altered W nine is not something you’re going to complete. The only the only form you want to complete, which is going to help you, is that seller certification. That I referenced earlier, the first, the first one. I’m gonna go back to that real quick.
11:27
OK, so really, it’s the seller certification.
11:38
All right.
11:43
It’s running away from me.
11:50
This is fine. You want to give this information out because it will establish that it has no liability, right.
11:58
So, here’s what you’re going to say. Basically. I am.
12:01
I filled out these forms OK, for this example so that I can arrive at summarizing what I filled out to the title company. That way, the title company gets to do its job.
12:15
It’s not going to be deficient in any forms and then believe it’s going to have to withhold. I want to make sure that the title company is not going to withhold just out of fear of doing the wrong thing.
12:23
So, I’m going to show you the cover letter.
12:28
Not only did I fill out the correct correct forms and not fill out the forms that don’t apply, be very careful on that.
12:38
Um, I did a cover letter, so that we’re all covered.
12:43
We’re all on the same page, hopefully, if they’ll read the cover letter, they’ll read it.
12:50
I’m explaining what’s going on here, so.
12:56
D I’m writing to the Title Company Refering about referencing the form, they want me to fill out, OK, and their certification. I just put forms here because I was too lazy, It doesn’t matter. They know what I’m talking about.
13:08
So I did the seller certification, OK.
13:12
Now here’s what it says, based on the selections I made the seller, my LLC.
13:17
It’s a disregarded entity.
13:19
The sole owner is what I happen to call the PMA, it could be John Smith or whatever you wanna call, it doesn’t matter whatever you called your …
13:26
that is going to be the transfer.
13:28
Or as they say, it’s not a foreign person because I said so.
13:35
And the EIN is stated on the official W nine form.
13:39
So I did not fill out the altered W nine.
13:42
I went and got into a recent W nine off the internet, I just searched on IRS Form W nine, PDF, OK, Do that. Don’t use their Altered Form and here’s why.
13:54
Regarding this form, they want me to fill out, OK, I told him, be advised that the owner of the residence at the property, which is the LLC, that’s the title holder, OK?
14:02
It’s not the beneficial owner, it is a non resident individual.
14:07
It is.
14:11
It’s, well, I’m sorry, it is not a non resident individual.
14:14
Why is it not a non resident individual double negative? Why is it a resident individual because we’re saying it’s a disregarded entity and that the owner is a resident of the state where the property is situated.
14:27
I know I’ve said that before, I hope.
14:29
This is kind of getting clear here.
14:32
If I didn’t use the PMA and identify it as a resident of where the property is sexual situated, I couldn’t say this.
14:39
The LLC is a non resident, but my PMA is not a non resident, OK?
14:47
So it doesn’t qualify for all these forms.
14:53
It’s not a C corp, obviously.
14:56
Aye.
14:59
Sometimes the title company will send you these forms under penalty of perjury, and they’ll highlight the signature line. They they just want you to sign it. Because they’re just like robots. They’re not really thinking. They don’t care. Anyways. They’re just doing what they’re told them. They’re afraid to do the wrong thing.
15:12
So here’s what you tell him.
15:14
You might be liable for what’s called sub nation of perjury, if I sign these forms, under penalties of perjury, as the seller, does not satisfy the criteria set forth in the forms.
15:25
Now, I’ll explain that.
15:28
If someone in an official capacity who’s acting in behalf of the tax collector, a title company, even though maybe he’s not authorized, but let’s not talk about that, tells you to sign something under penalty of perjury.
15:43
Or else the implication is or else I’m going to withhold your money or something like that.
15:49
If you fill out the form, and it’s not the proper form, you should know if it is or not.
15:54
You fill out the form under penalties of perjury.
15:57
It may be false.
15:59
You may be making false statements, especially if you fill out, if you just sign the form and leave everything blank, who knows what somebody else may write in there, OK?
16:06
You’re responsible for that.
16:08
So don’t fill the format. If it doesn’t apply to you, don’t make false statements under penalties of perjury.
16:14
But if you did that, the person who told you to do it or else is actually the person who’s liable for perjury, because he or she used, as official capacity, to tell you to do this or else, OK.
16:28
Now, Subornation means, while you committed perjury, the person who ordered you to do that actually was liable for perjury.
16:37
That’s what sovereign nation of perjury means.
16:39
It’s a similar it’s the same penalty as if he lied under oath because you lied under oath, because he told you to OK.
16:45
So this I say it this way, because now this person who is an order follower is going to look at that and say, whoa, there’s a bigger liability here.
16:54
If I do this, dinner fi, do what I’m being told. So apparently what I’m being told is incorrect.
16:59
I don’t want to accused of perjury. I like to tell the truth, right? So you want to convince and persuade them that it’s a problem for that person if you do this.
17:08
So then I go and explain about the W nine and the cover letter.
17:12
So the end of the company is, and I put the number in there, two digits dash, but ever 70.
17:19
I did include the W nine, the actual real offical OMB approved W nine. I did not complete your altered version as it’s not approved by the Office of Management and Budget Budget. It does not have an approved OMB number. You can look this up.
17:33
It’s very significant, OK.
17:38
Therefore, the owner is not able to complete this form due to its not not being eligible. The owner is not eligible to complete this form.
17:47
It’s not an official form to collect that data.
17:50
Therefore there is no withholding obligation.
17:52
That’s the end result here who cares, who gets the 1099? You’ve already covered that. The title holder is going to get the 1099.
17:58
You just don’t want to be taxed as a non resident and because you, your PMA is what it is that handles that matter.
18:07
Now you could individually be the owner, know the beneficial owner save your PMA, So just keep that in mind, I like to use the PMA.
18:17
Then of course I always tell him.
18:19
Look, guys, I’ve already got people advise me about what my liabilities are and how to manage them and what my tax consequences are. I don’t need you telling me anything about tax information. I can handle that myself.
18:29
You do your job and I’ll do my job, right?
18:32
So that’s another benefit of using the PMA.
18:36
You’ll be able to handle situations like that once you understand how this strategy works in different situations.
18:44
But I hope that helps.
18:46
If you ever run into that situation, you’ve got a video here.
18:50
And hopefully I’ve covered everything. I think I have.
18:54
We’re going to cover more of this stuff.
18:57
All right.
19:02
All right, thanks for watching.