Insights

In Palmer House Borrower, LLC,[1] the Ohio Supreme Court held a transfer of the interests in an LLC can be presumed to represent the value of the commercial real estate owned by that LLC

LLC transfers in Ohio have been used as a vehicle to transfer membership interests, business value, personal property, and sometimes real property.  When involving real estate, they are accompanied by an exempt conveyance fee statement and often do not include consideration for the transfer of real estate. 

In Palmer House, the local school district proved the LLC transfer was merely the transfer of real property.  Integral to its case was a purchase agreement and settlement statement, obtained through discovery,  that specifically outlined the sale of the subject real estate.  To try to overcome the argument that the purchase price was representative of the real estate value as would be presumed in a standard sale of real estate, the taxpayer presented an appraisal.  However, this appraisal failed to analyze the transaction or even consider the sale documentation.  As a result, the Court found the exempt LLC transfer immaterial to the fact that the record supported a transfer of realty.   The Ohio Board of Tax Appeals found the sale documents reflected the parties’ intent to engage in a real estate transaction and the Supreme Court agreed. It is likely that LLC transfers will be used more frequently as evidence of real estate for taxation purposes. Read the decision here.