Q&A with the Pennsylvania Department of Revenue

Scenario: A nonresident decedent owned real estate in PA through a single-member LLC that is organized in PA. Per the terms of his will, ownership of the LLC transfers to his children.

Jun 19, 2012
Q:

A nonresident decedent owned real estate in Pennsylvania through a single-member LLC that is organized in Pennsylvania. Per the terms of his will, ownership of the LLC transfers to his children. Is the transfer of an interest in a Pennsylvania single-member LLC, owning real estate in Pennsylvania, per an intestacy transfer, by a nonresident decedent, subject to inheritance tax? Does the answer change if the LLC is organized in a state other than Pennsylvania?  Normally an intestate transfer of real and tangible property located in Pennsylvania by a nonresident is subject to tax. Can tax be avoided simply by “packaging” the Pennsylvania property in a single-member LLC (which is otherwise disregarded for most tax purposes)?

A:

Absent additional factors, this transfer would be considered a taxable transfer of Pennsylvania real estate regardless of whether the LLC was organized in the Commonwealth or another jurisdiction.  The basis for this determination would be that a single-member LLC that holds nothing more than real estate (particularly residential real estate) does not appear on the surface to provide sufficient economic substance to convert the real estate to an intangible.  In essence, the LLC serves merely as a holding company, and is properly ignored for purposes of inheritance tax assessments.  






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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.