Did transferring three unencumbered Florida parcels to a newly formed LLC trigger documentary stamp tax when the owners kept identical 50% beneficial interests?

Plain-English summary

Florida imposed only minimum documentary stamp tax on the deeds transferring three unencumbered parcels to a newly formed LLC. The revised advisement applied Kuro v. Department of Revenue because beneficial ownership remained the same.

Before the transfer, one brother held 50%, and the other brother and his wife held the other 50% as tenants by the entireties. Afterward, those same parties held matching 50% membership interests in the LLC. The company gave no money, property, or additional membership interests in exchange, and the transfer did not change the owners' net worth.

Each deed recited $10, but the ruling focused on the absence of actual consideration and the unchanged beneficial interests.

What this means for you

The result was tightly tied to unencumbered property, no exchanged consideration, and identical beneficial ownership. A mortgage, debt discharge, ownership shift, cash, or additional entity interest would present different facts under section 201.02.

Common questions

Q: Was the transfer completely tax-free?
A: No. The deeds were subject to minimum documentary stamp tax.

Q: Why did fair market value not control?
A: On these facts, Florida found no consideration and unchanged beneficial ownership under Kuro.

Q: Did the LLC issue extra interests for the property?
A: No. The facts said it gave no additional membership interests or other consideration.

Q: Would encumbered property necessarily receive the same result?
A: The ruling did not decide that situation; these parcels were unencumbered.

Citations and references

• Fla. Stat. § 201.02(1) — documentary stamp tax and consideration
• Kuro, Inc. v. Department of Revenue, 713 So. 2d 1021 (Fla. 2d DCA 1998)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Revised advisement: TAA 03B4-008

Original ruling text

SUMMARY

QUESTION: Under the scenario where two individuals who own
unencumbered property in equal proportion, and are
proposing forming a new Florida limited liability company
and transferring such real property from themselves to
their newly formed Florida limited liability company, are
documentary stamp taxes due on the transfer?

ANSWER - Based on Facts Below: Only minimum documentary
stamp taxes would be due on the transfer of the
unencumbered property from two individuals to their newly
formed Florida limited liability company. Based on the
ruling in Kuro v. Department of Revenue, 713 So.2nd 1021,
23 Fl. L. Weekly D1209 (Fla. App. 2 Dist. 1998), if
property was owned in the same proportion prior to being
transferred into an artificial entity, and after the
transfer, the percentage ownership in the limited liability
company is the same as the percentage ownership of the
property by the individuals, the deed is only subject to
minimum tax. As in Kuro, the beneficial ownership remains
the same.

Aug 29, 2003

Re: Technical Assistance Advisement No. 03B4-008 REVISED
Documentary Stamp Tax - Transfer of Property to a Florida
LLC
Section 201.02(1), F.S.
XXX ("Company")
XXX ("Brother 1")
XXX ("Brother 2")
XXX ("Wife")

Dear :

This is in response to your letter dated June 26, 2003,
requesting a Technical Assistance Advisement with respect to a

documentary stamp tax transfer, and the subsequent tax
implications.

FACTS PRESENTED BY THE PETITIONER

For many years, Brother 1 and Brother 2 have owned equally,
as tenants in common, 3 unencumbered parcels of real estate
located in a county in Florida (collectively, "Properties"). In
1986, Brother 2 conveyed his one-half interest in the Properties
to himself and his wife. As a result, Brother 2/Wife, as
tenants-by-the-entireties, are equal tenants in common, with
Brother 1, of the Properties.

Brother 1 and Brother 2/Wife intend to form a Florida
limited liability company ("Company"), with each owning a
membership interest equal to 50%. Brother 2/Wife will own their
single, 50% membership interest, as tenants by the entireties.
Once Company is formed, Brother 1 and Brother 2/Wife will
contribute nominal consideration for their membership interests.
Some time after the membership interests have been issued,
Brother 1 and Brother 2/Wife will transfer Properties to
Company. Each deed will reflect consideration of $10.00. No
consideration of any kind (whether in the form of money,
tangible property, or additional membership interests in
Company) will be given by the Company to Brother 1 or Brother
2/Wife in exchange for Properties, nor will any consideration of
any kind be exchanged between Brother 1 and Brother 2/Wife for
the transfer of Properties to Company. Once the transfer of
Properties is complete, Company will own 100% fee simple title
in the Properties (which will be unencumbered), and Brother 1
and Brother 2/Wife will each own a 50% membership interest in
Company. The resulting ownership in Company - 50% -will be
identical to the pre-transfer ownership interest of Brother 1
and Brother 2/Wife in Properties. The resulting transfer will
have no effect on the net worth of Brother 1 or Brother 2/Wife.
Brother 1 and Brother 2/Wife intend to retain their membership
interests in Company, and to continue to hold Properties in
Company for management purposes.

REQUESTED RULING

The relevant parties to the transaction request a ruling,
based on the facts, that the transfer of the Properties is not
subject to Florida documentary stamp tax or any documentary
stamp tax surtax, other than the minimum tax imposed under
Chapter 201, F.S.

LAW AND DISCUSSION

Section 201.02, F.S. (2001) provides as follows:

201.02 Tax on deeds and other instruments relating to real
property or interests in real property.--

(1) On deeds, instruments, or writings whereby any lands,
tenements, or other real property, or any interest therein,
shall be granted, assigned, transferred, or otherwise
conveyed to, or vested in, the purchaser or any other
person by his or her direction, on each $100 of the
consideration therefor the tax shall be 70 cents. When the
full amount of the consideration for the execution,
assignment, transfer, or conveyance is not shown in the
face of such deed, instrument, document, or writing, the
tax shall be at the rate of 70 cents for each $100 or
fractional part thereof of the consideration therefor. For
purposes of this section, consideration includes, but is
not limited to, the money paid or agreed to be paid; the
discharge of an obligation; and the amount of any mortgage,
purchase money mortgage lien, or other encumbrance, whether
or not the underlying indebtedness is assumed. If the
consideration paid or given in exchange for real property
or any interest therein includes property other than money,
it is presumed that the consideration is equal to the fair
market value of the real property or interest therein.

In the case of Kuro, Inc. v. Department of Revenue, 713
So.2nd 1021 (Fla. 2nd DCA 1998), the court ruled there was no
consideration for the transfer of unencumbered real estate from
a father and son to their solely owned corporation, as the
beneficial interest in the property remained the same. The
court decided that the deed was only subject to minimal
documentary stamp tax.

DETERMINATION

In light of the ruling in Kuro, the deed affecting the
described transfer of Properties from Brother 1 and Brother
2/Wife will only be subject to minimum documentary stamp tax.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice, as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment from that
which is expressed in this response.

You are further advised that this response, your request
and related backup are public records under Chapter 119, F.S.,
and are subject to disclosure to the public under the conditions
of s. 213.22, F.S. Confidential information must be deleted
before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Joy B. Eldred, CPA
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office of the General Counsel

JE/mh