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tax purposes as an intangible asset," and the condominium owned by the LLC would be treated as real
property held by T for New York estate tax purposes.
•
TSB-A-08(1)M (October 24, 2008). Here, T had a similar query. She was a Florida resident who
wanted to buy a New York condominium through an entity she would create. Which one would be
treated as intangible property for purposes of the New York estate tax: a Florida S Corporation, or a
single member LLC?
What the opinion said. The upshot of the opinion was that if there were a business purpose for the S
Corporation and it was "entitled to recognition for tax purposes." then, yes, T's holding in the S
Corporation could be considered intangible property that would not be subject to New York estate tax; if
the S Corporation were not entitled to recognition under that standard, then the condo would be included
in T's New York gross estate. The same analysis would apply to a single member LLC.
What does this mean? In a nutshell. New York is well aware of why a non-resident might want to 'convert"
New York real property into intangible property that would not be subject to New York estate tax at that non-
resident's death. What is clear from these two opinions is that a single member LLC will not suffice: does
that mean that a multi-member LLC will work? Suppose, for example, that non-resident Mom and Dad are
the two members of the LLC that owns a New York condo; will this structure insulate the condo from New
York estate tax when the first of them dies? Arguably yes, afthough the New York tax could be moot at that
point if the deceased spouse's LLC interest simply passes to the surviving spouse and qualifies for the
marital deduction. The dangling issue is what happens when the surviving spouse is now the sole member
of the LLC, which presumably becomes a disregarded entity.
A final note. It is worth contrasting the holdings of these two opinions with the actual language of New
York's estate tax law and its constitution. As noted above, the tax law (§ 960 of Article 26) says that estate
tax applies to a non-resident decedent's transfer of "real and tangible personal property having an actual
situs in New York state." § 3 of Article XVI of New York's constitution, dealing with the taxation of intangible
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property, states in part: 'Moneys, credits, securities and other intangible personal property within the state
not employed in carrying on any business therein by the owner shall be deemed to be located at the domicile
of the owner for purposes of taxation (italics added]."
In other words, the opinions reflect Tax Department policy that doesn't necessarily square with the literal
language of the underlying law. Stated differently, the opinions are designed to have a chilling effect, and
seem to represent New York's litigating position — namely, that a single member LLC/disregarded entity
holding New York real estate will not insulate that real estate from New York estate tax at the non-resident
owner's death. This is a point that a wealthy non-resident decedent's estate might be willing to contest.
Nevertheless, that same non-resident might prefer to avoid the issue entirely, and perhaps buy a cooperative
apartment instead (a co-op is intangible property), or seek a more complex ownership structure for the
condo.
August 7520 rate
The IRS has issued the August 2015 applicable federal rates: the August 7520 rate is 2.2%, the same as
July's 7520 rate. The August mid-term rates are: 1.82% (annual). 1.81% (semiannual and quarterly) and
1.80% (monthly). The July mid-term rates were: 1.77% (annual), 1.76% (semiannual and quarterly) and
1.75% (monthly).
Blanche Lark Christerson is a managing director at Deutsche Asset & Wealth Management in New York
City, and can be reached at blanche.christerson@dt).com.
The opinions and ar,-dynes expressed herein are those of the author and do not necessarily reflect those of Deutsche Bank AG or any
affiliate thereof (collectively. the 'Bente). Any suggestions contained herein are general. and do not lake into account an inciadual's
specific circumstances or applicable ft:veining law. which may vary from ii.arsdiction to jurisdiction and be subject 10 change. No
warranty or representation. express or implied. is made by the Bank. nor does tie Bar* accept any liability with respect to the
information and data set forth herein The information contained herein is not intended to be. and does not constkute. legal, tar,
accorraing or other professional advice: a is also not intended to otter penalty protection or to promote. market or recommend any
transaction or matter addressed herein. Recipients should consult chair applicable professional advisors prior to acting on the