Friday, November 16, 2012

Do I need separate EINs for each series of a Texas Series LLC?

Another issue that has not yet been resolved is whether a series must get an EIN that is separate from the Series LLC. The general consensus is "yes" the Series LLC and each series within the Series LLC (i.e. Sub-series) can and should get an EIN. The IRS in a Proposed Regulation from 2010 has indicated that each sub-series should be treated a separate entity for federal income tax purposes. Because Texas law does not require separate bank accounts for the various sub-series, it is tempting not to get separate EINs if a sub-series does not need a bank account and will not have employees.

The IRS had this to say about classification of the Series LLC and each sub-series (as of the date of this article, this is a proposed regulation, not a final regulation:

The proposed regulations do not address the entity status or filing requirements of series organizations for Federal tax purposes. A series organization generally is an entity for local law purposes. An organization that is an entity for local law purposes generally is treated as an entity for Federal tax purposes. However, an organization characterized as an entity for Federal income tax purposes may not have an income or information tax filing obligation. For example, §301.6031(a)-(1)(a)(3)(i) provides that a partnership with no income, deductions, or credits for Federal income tax purposes for a taxable year is not required to file a partnership return for that year. Generally, filing fees of a series organization paid by series of the series organization would be treated as expenses of the series and not as expenses of the series organization. Thus, a series organization characterized as a partnership for Federal tax purposes that does not have income, deductions, or credits for a taxable year need not file a partnership return for the year.

In other words, under the proposed regulation above, each sub-series of a Series LLC will be treated as a separate entity for federal income tax purposes. As a result, each sub-series will be classified under the “check-the-box” regulations and may make any federal tax election it is otherwise eligible to make independently of any other sub-series. For example (barring any affirmative elections):

ABC, LLC has two sub-series; ABC, LLC - Series 1 is owned my 1 member; ABC, LLC - Series 2 is owned my 2 members;

ABC, LLC - Series 1 will be treated as a sole proprietorship or disregarded entity and the sole member will report the profits of ABC, LLC - Series 1 on his/her personal 1040.

ABC, LLC - Series 2 will be treated as a partnership and thus will need to file a partnership tax return.

Getting back to the original question...Does the Series LLC and each sub-series need an EIN? The answer seems rather simple: Determine the tax classification of the Series LLC or sub-series and then determine which of them will require an EIN (the answer is almost always "yes" an EIN is needed). See why on this article Does my LLC need an EIN.

Visit our main website: Texas Series LLCs

Friday, March 16, 2012

Do you have to maintain a separate bank account for each series in a series LLC?

We always recommend that you treat each series as a separate entity. As such, you should maintain separate bank accounts for each series. However, the Texas Business Organizations Code does not specifically require separate bank accounts. It does require that records maintained for a particular series account for the assets associated with that series separately from the other assets of the parent LLC or any other series. If the records of a series are maintained in a manner so that the assets of the series can be reasonably identified by specific listing, category, type, quantity, or computational or allocational formula or procedure, including a percentage or share of any assets, or by any other method in which the identity of the assets can be objectively determined, the records are considered to satisfy the requirements Texas Business Organizations Code.

Wednesday, November 23, 2011

Is the buyer of a business liable for the seller's sales tax obligations?

A purchaser of any business or stock of goods is liable for payment of any amount owed the state by the seller under the Title 2 (Chapters 101 through 211) of the Tax Code up to the amount of the purchase price.

As such, the purchaser must, at the time of purchase, withhold a sufficient amount from the purchase price to pay any amounts due including penalties and interest or any other amounts assessed or to be assessed against the seller.

A purchaser's duty to withhold the amount owed by the seller will continue until the seller presents to the purchaser a certificate from the comptroller stating that no tax is due.

When determining if a "business" has been or will be sold, the comptroller will examine the transaction to determine what the parties to the transaction intended to buy and sell. The answer in each situation will depend on the type of business involved. A seller may have sold a "business" even when few assets were transferred. Depending on the type of business involved, a "business" may be sold if an owner sells:
(1) a building, land, furniture, fixtures, inventory, and the right to use the seller's trade name; or
(2) all the capital assets of a business; or
(3) the name and goodwill of a business; or
(4) all the inventory of a business; or
(5) fixed assets and realty necessary to operate a similar business as the seller at the same location.

A certificate stating the amount due or that no tax is due may be obtained in the following manner: The seller, the seller's assignee, or purchaser must make a written request for the certificate before the sale of the business is completed. The comptroller must then issue a certificate to the seller within 60 days after the records are made available by the seller for audit or within 60 days after receiving the written request for the certificate, whichever period expires later, but in any event not later than 90 days after receiving the written request. If any amount is found to be due, it must be paid before the certificate will be issued. Failure of the comptroller to timely issue the certificate to the seller will release the purchaser from any further obligation to withhold an amount from the purchase price.

If you are buying or selling a business, feel free to contact our Dallas office to discuss at (214) 206-1999 or via email at

What happens if your spouse forgets to remove his/her ex as a life insurance beneficiary?

Under the Texas Redesignation Statutes, a pre-divorce decree designation of an ex-spouse as the beneficiary of a life insurance policy is void. For example, John Doe was married to Jane Doe and designated her as the beneficiary of his life insurance policy in 2000. In 2005, John and Jane get a divorce. In 2009, John passes away. Jane would NOT be entitled to receive the proceeds of the life insurance policy.

Understandably, there are a few exceptions to this general rule: (1) if the divorce decree ratifies the pre-decree designation; (2) if the insured redesignates the former spouse as the beneficiary after the date of the divorce; or (3) the Texas Redesignation Statutes to not apply to ERISA death benefits.

If a designation is void as a result of the redesignation statutes described above, the proceeds of the policy should be paid to the named alternative beneficiary or, if there is not a named alternative beneficiary, to the estate of the insured.

If you believe that you are entitled to the proceeds of a life insurance policy as a result of the redesignation statutes, we highly recommend that you contact an attorney as soon as possible to make a claim on your behalf. Please note that as long as the life insurance company pays the death benefit to the original beneficiary before receiving proper notice from an alternate beneficiary, they are off the hook and will not be liable to the alternate beneficiary!

Friday, July 23, 2010

Do I have to prepare a new will to replace my executor?

Under the Texas Probate Code, in order to modify the clause designating the executor, you would need to add a codicil to the will revoking the original clause which designated the executor in favor of the new clause designating a different executor. The codicil would need to be signed by the testator and witnessed in the same manner as the will. The relevant section of the Texas Probate Code is: § 63. REVOCATION OF WILLS. "No will in writing, and no clause thereof or devise therein, shall be revoked, except by a subsequent will, codicil, or declaration in writing, executed with like formalities…"

Monday, June 21, 2010

The End of Seller Financing?

In the past, Seller financing of up to 5 transactions in a rolling 12 month period was permitted without licensure under the Texas Mortgage Broker Act (Chapter 156 of the Texas Finance Code). This exemption was recently eliminated by the implementation of the Texas SAFE Mortgage Licensing Act of 2009 (Chapter 180 of the Texas Finance Code).** The Texas SAFE law was mandated by the federal SAFE Mortgage Licensing Act of 2008 which was signed into law in July 2008. In short, Texas, like most states, is simply following the federal mandate.

Several factors should be considered when determining if a seller financer is required to be licensed under the Texas SAFE Act.

The Texas SAFE Act exempts an individual who offers or negotiates terms of a residential mortgage loan secured by a dwelling that serves as the individual’s residence. Thus, a homeowner may sell his or her personal residence and offer financing without triggering the licensure requirements under the Texas SAFE Act.

An exemption is also granted for a person who offers or negotiates terms of a residential mortgage loan on behalf of a person of direct familial relationship.

Additionally, the Texas SAFE Act defines a residential mortgage loan as a loan primarily for personal, family, or household use. Generally speaking, a loan is for personal, family, or household use if the buyer intends to occupy the property as a primary, secondary, or vacation residence. If the buyer is purchasing the property as an investment, the transaction is not for personal, family, or household use and is not subject to licensure requirements under the Texas SAFE Act.

In most cases, if the transaction does not meet one of the above descriptions, then the individual who acts in the capacity of a residential mortgage loan originator (takes an application or offers or negotiates terms) must be licensed for even just one occurrence. This does not necessarily mean that the seller financer must be licensed. The seller financer may engage a licensed residential mortgage loan originator to conduct all the activities that require a license. In this scenario, the seller financer should make sure to avoid conducting any activities that would require licensure.

**UPDATE - On August 17, 2010 the Commissioner of the Texas Department of Savings and Mortgage Lending signed a written notice that the Department will continue to allow the exemption found in § 156.202(a)(3) [up to 5 seller financed transactions in a rolling 12-month period], until or unless there is a subsequent statutory amendment or a rule adopted under this chapter, in which case said amendment or rule will supersede.