DOC STAMPS DUE ON DEED BETWEEN COMMONLY CONTROLLED ENTITY (FLORIDA)

Beginning with Kuro, Inc. v. State, 713 So.2d 1021 (Fla.App. 2 Dist. May 15, 1998), and as finally confirmed by the Florida Supreme Court in Crescent Miami Center LLC in 2005, transfers of Florida real property from owners to wholly-owned entities are not subject to Florida documentary stamp taxes, at least when the property is unencumbered. Based on these decisions, the Florida Department of Revenue has acknowledged in various technical assistance advisements that transfers of unencumbered real estate between entities that are commonly owned are also nontaxable.

There are limits to these precedents. In a recent case, the 2nd District Court of Appeals held that a transfer of encumbered real estate was taxable, notwithstanding that it was a transfer from one entity to another, both of which were ultimately owned and controlled by the same individual.

So where does this leave the issue of such a transfer if the property is unencumbered?

In the case, documentary stamps were paid only on the mortgage balance, and refund was sought by the taxpayer. There was no mention of additional documentary stamps being due on the excess of the value of the property over the mortgage – but neither was there any discussion on that issue at all. Therefore, the case may be limited to situations when there is a mortgage, and that stamps are imposed only to the extent of the mortgage.

On the other hand, the court did discuss how this case is factually different from Crescent Miami Center LLC, apart from there being debt on the property. This leaves the door open to an argument that the concepts of Crescent Miami Center LLC (relating to a lack of consideration for transfers between owners and their wholly owned entities) may not apply in regard to transfers between commonly controlled entities.

DEPARTMENT OF REVENUE, Appellant, v. PINELLAS VP, LLC, Appellee. 2nd District. Case No. 2D07-6037. DEPARTMENT OF REVENUE, Appellant, v. TPA INVESTMENTS, LLC, f/k/a Condo LLC, Appellee. Case No. 2D07-6039. (Consolidated), 34 Fla. L. Weekly D101b, Opinion filed January 7, 2009.

OBAMA SURPRISES WITH BUSINESS TAX BREAKS

In a surprising announcement, President-elect Obama has indicated that his upcoming stimulus package will include tax breaks for business. While lacking in details, the following breaks are expected to be included:

• an extension of the net operating loss carryback period to five years for 2008/2009 losses;
• a two-year extension of bonus first year depreciation;
• enhanced expensing for business property; and
• tax incentives for businesses that hire new workers.

Such relief will be welcomed, especially in light of the current business environment.

DEPRECIATION DEDUCTIONS FOR LAND

Land (but not buildings and improvements on the land) is not subject to the allowance for depreciation. However, there is one method of obtaining depreciating deductions for land. A recent private letter ruling summarizes the method and the limitations on its use.

The method involves a purchase of a term of years interest in land. The IRS acknowledges that this converts the land to an intangible asset with limited use, thus qualifying it for depreciation deductions over the term of years (assuming that the land is used in a trade or business of the acquiring taxpayer or held for the production of income). Buildings purchased in this manner are not depreciated over the term of years, however – as regular depreciable assets they are depreciated under normal (MACRS) depreciation rules and terms.

With depreciation deductions allowed for land in this manner, the planner will think to acquire land in joint fashion to create deductions – that is, have a business entity that will be using the land acquire a term of years interest, and have the remainder interest purchased by a related person or entity. Thus, 100% of the land is acquired between the related entities, but the business entity will get depreciation deductions.

However, Congress has already closed the door on that technique, by providing that no depreciation deductions will be allowed to the term of years owner when the remainder interest is owned by a related person (within the related party rules of Sections 267(a) and (e)). If the acquiring taxpayers are able to plan around the related party rules of Sections 267(a) and (e), then this split purchase technique should be available.

Private Letter Ruling 200852013, 12/26/2008