New Foreign Owned Single Member LLC Reporting Requirements

  • December 21, 2016

The IRS and Treasury department issued a new ruling on December 12, 2016, which is intended to create more financial transparency and reduce criminal activity (remember the “Panama Papers”?).  The new regulations will create a mechanism whereby U.S. tax information will come to the attention of a foreign investor’s home country. This directly impacts reporting requirements for foreign owned single member LLCs.

New Foreign Owned Single Member LLC Reporting RequirementsFor tax years beginning after January 1, 2017, domestic disregarded entities (e.g. single member LLCs) will be required to report and maintain records pursuant to Internal Revenue Code 6038A which previously only applied to 25% foreign owned domestic corporations.

Single member foreign owned entities will now be required to obtain a U.S. employer identification number (EIN) and to designate a “responsible party” (who is, in essence, the person that enables the “individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds and assets”). The ruling also requires the filing of IRS Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, which reports certain transactions with related parties, including amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity, including contributions to and distributions from the entity.

The final ruling can be found in its entirety here.

New Implications for California Brokers and Dual Agency

  • December 6, 2016

On November 21, 2016, the California Supreme Court issued a ruling in Horiike v. Coldwell Banker Residential Brokerage Company that is likely to have far reaching implications for California real estate brokers in terms of dual agency. As we have written about in the past many states, including Nevada and California, allow real estate brokers and sales persons to represent both a buyer and seller in a real estate transaction provided that proper disclosures are made to the parties.

While dual agency statutes generally impose fiduciary duties of care, integrity, honesty and loyalty in dealings with both parties, we have often raised the effectiveness of these duties to overcome the inherent conflict of interest presented by dual agency. In fact, when enacting the current dual agency statutes in California, the California Legislature noted that the proposed statute could not cure “the fundamental problem in dual agency relationshdual-agency-2ips – potential and sometimes unavoidable conflicts of interest” but rather was “simply [a] ‘disclosure’ bill intended to inform the buyers and sellers in a real estate transaction of the possible agency relationships and duties owned by a realtor…” (Sen. Rules Com., Bill No. 3349 (1985-1986 Reg. Sess.)).

Often as one way to mitigate some dual agency conflicts, different agents working under the same broker will each represent one party in the transaction rather than having one agent represent both parties. This is the type of relationship that was at issue in the Horrike case.

Horiike, filed suit after discovering a significant discrepancy between the actual square footage of his new condominium and the square footage that was represented by the marketing materials. The Court, in deciding the very narrow question of whether the listing agent, working under the same broker as Horiike’s agent, owed Horiike a duty to learn and disclose all information that could materially affect the value or desirability of the property, concluded that he did.

The Court interpreted the statute to mean that an agent’s duties are equivalent to the duty of the broker for whom s/he functions. i.e. a real estate agent does not have an independent agency relationship with the client of the broker, rather the agency relationship with the client is derived from the agency relationship between the broker and the client. As a result, the relationship between broker and agent cannot be uncoupled.

Therefore, when the broker agrees to act as dual agent for both buyer and seller, both broker and the agents assume all of the duties of dual agency, including those statutory fiduciary duties to investigate and disclose material information.

It will be interesting to see if the California Legislature takes another look at dual agency in light of this case. We will be sure to inform you if they do.

Dual Agency

  • December 6, 2016

I recently obtained a full dismissal of all charges brought by the Nevada Real Estate Division (NRED) against one of my clients for alleged violations of Nevada broker licensing laws. In my opinion, NRED was reaching on a number of issues, and was bowing to some uneducated political pressure by bringing the cases in the first place. My client was not the only broker or agent subjected to these charges and it bears noting that most of the cases were fully dismissed before hearings (including that of my client), two after a hearing and another two cases are pending judicial review. There were a number of important issues at stake in these cases. One of which was the propriety of dual agency.

Dual Agency refers to the situation in which the same real estate agent represents both the seller and the buyer in a real estate real-estate-dual-agency-buyers-and-sellerstransaction. Dual Agency is legal in Nevada, however, under NRS 645.252, if an agent acts on behalf of more than one party to the transaction they must obtain written consent from each party which must include: (i) a description of the real estate transaction; (ii) a statement the agent is acting for two or more parties who have adverse interests and that in acting for those parties the agent has a conflict of interest; (iii) a statement that the agent will not disclose confidential information for 1 year after the transaction unless compelled by a court to do so or given written permission by the party to do so; (iv) a statement that the party is not required to consent to the dual agency and v) a statement that the party is not being coerced into consenting and understands the terms of the consent. NRED has prescribed forms for these disclosures.

Where a broker assigns two different agents, who both work under the same broker, to a single transaction, this is not referred to as dual agency and does not require the same disclosures as set forth above.

Dual Agency representation by realtors is a practice that may be questionable in, or outside of, the context of short sales because of the inherent conflicts of interest. The policy implications are significant to the protection of buyers and sellers.

Regardless, it is legal in the state of Nevada and neither our legislature nor the local realtor boards have sought to make changes to this practice. As with many aspects of contracts, and law in general, parties to a transaction or contract are advised to be aware of their rights and what they are contracting for.

LEGAL CLARITY: Adult Adoption

  • December 5, 2016

This article originally appeared in Incline Law Group’s Legal Clarity column, which is published monthly in the Sierra Sun North Lake Tahoe Bonanza.

Many people do not realize that there is a procedure available for the adoption of adults. There are several reasons that make adult adoption worth exploring.

Adult AdoptionIn the age we live, divorce is common and children are often raised by stepparents or other individuals who are not their natural parents, playing an important de facto parent role in a child’s life.

During the child’s minority (e.g. up to age 18), it is not possible to adopt a child without the consent of the child’s natural parent, or grounds to terminate the relationship between the child and its natural parent.

Nevertheless, the de facto parent may establish very close bonds with a child and desire to legally solidify the nature of their relationship, even if it is after the child has grown. Once the child turns 18, the adult adoption process is a wonderful opportunity to do this.

Adult adoptions provide a means to legally recognize the relationship and to secure inheritance and other rights for the child from the stepparent. Even if a stepchild has been raised in a stepparent’s home for their entire life, the adult stepchild would not be eligible to inherit by intestacy from a deceased stepparent.

The adult adoption is the perfect remedy for this type of circumstance. It is important to note that the adult adoption does not have any impact on the relationship between the child and his natural parent and does not preclude the child from inheriting from his natural parent through the laws of intestacy as well.

Adult adoptions can also assist in aiding a young person to legally immigrate to the United States. It bears mentioning that the best time to accomplish the adoption would be before the child reaches the age of 16. However, even if the child has already reached the age of majority, the adult adoption is another factor that may assist the person’s ability to achieve legal immigration.

The adult adoption procedure is very simple and does not involve much in terms of time or money. There is rarely a home study or investigation by a social worker required and there is only a small amount of court filings necessary.

Only one court appearance (which can even be waived under certain circumstances) is required by statute. It is always important to be vigilant in reviewing your estate plan to determine areas which need improvement. If you have been part of a blended family, adult adoption may provide a component, which may be currently lacking in your estate plan.

Most importantly, it has the effect of not only enhancing and legitimizing the bonds of a blended family, but also providing for much needed security to stepchildren after they have grown.