Beware of Real Property Deed Scams and more...


Beware of Real Property Deed Scams

If you own real property in Arizona do not fall for the “you need to get a copy of your deed” rip off.  Companies send real property owners official looking letters that contain language intended to convince the reader that it is important to have a copy of their deed.  One of the letters says:

“The U.S. Government Federal Citizen Information Center website recommends that property owners should have an official or certified copy of their deed. If you don’t already have this important document, you may obtain one now. This document provides evidence that your property was transferred to you.”

Each letter offers to send you a copy of your deed for a price 2 – 5 times the cost of purchasing the deed directly from the county recorder.

If you get one of these letters throw it in the trash.  If you own real estate you would have gotten the original deed when you acquired the real estate.  If you need a copy of your deed you can get a copy at no cost from the county recorder’s website or from the county recorder’s office for a nominal fee if the county does not have its documents available on the internet.  To get a copy of a deed from the Maricopa County Recorder, go to the recorder’s excellent website.

Three companies that send out these letters are:

  • First Documents
  • Local Records Office
  • National Record Service Inc.
deed-scam

The post Beware of Real Property Deed Scams appeared first on Arizona Limited Liability Company Law.

    


Partnership & S Corporation Tax Returns are Due Today

Under new IRS rules entities that are taxed as partnerships or S corporations must file their federal income tax returns today, March 15, 2017, or file IRS Form 7004 to request an automatic 6-month extension of time to file the return from the due date of the return.  See the instructions for IRS Form 7004.

The post Partnership & S Corporation Tax Returns are Due Today appeared first on Arizona Limited Liability Company Law.

    


Does Your LLC’s Operating Agreement Say What Happens if a Member or the LLC Gets a Judgment Against a Member?

Homer Simpson and Ned Flanders owned 60% and 40%, respectively, of World Wide Widgets, LLC, an Arizona limited liability company.  WWW manufactures and sells widgets.  Without WWW’s knowledge or consent Ned began working for Arizona Widgets, LLC, a competitor of World Wide Widgets, LLC.

WWW sued Ned for breach of fiduciary duty and misappropriation of trade secrets by disclosing information to Arizona Widgets, LLC.  The Arizona court awarded WWW a judgment for $100,000 and ordered that Ned transfer his entire membership interest in the LLC to the LLC.

WWW can use the collection process to collect the money from Ned’s non-WWW assets, but can WWW acquire Ned’s membership interest in the LLC if Ned does not voluntarily transfer his membership interest to the LLC?  Arizona Revised Statutes Section 29-655 states:

“On application to a court of competent jurisdiction by any judgment creditor of a member, the court may charge the member’s interest in the limited liability company with payment of the unsatisfied amount of the judgment plus interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the member’s interest. . . . This section provides the exclusive remedy by which a judgment creditor of a member may satisfy a judgment out of the judgment debtor’s interest in the limited liability company.”

Emphasis added.

Section 29-655 seems to prevent WWW from forcing Ned to transfer his membership interest to the LLC because the charging order is WWW’s sole remedy.

The WWW fact pattern is similar to the facts in a recent Texas LLC case called “Gillet v. ZUPT LLC,” Houston 14th Court of Appeals, Case No. 14-15-01033-CV, 2/23/17.  In this case ZUPT, LLC, got a judgment that required its member Joel Gillet to transfer his entire membership interest to ZUPT, LLC.  Like Arizona, Texas LLC law provides that the charging order is the sole remedy of a creditor who gets a judgment against a member of a Texas LLC.

The Texas Court of Appeals ruled that the charging order exclusive remedy statute did not prevent a court order that Gillet transfer his membership interest to the LLC.  The Court stated:

“We hold that requiring turnover of a membership interest under these circumstances is proper for two reasons. First, the reasoning behind requiring a charging order as the exclusive remedy is inapposite when the judgment creditor seeking the membership interest is the entity from which the membership interest derives. Second, unlike a case in which a judgment creditor seeks to collect on its money judgment by forcing a sale of a membership interest, this case involves an explicit award of the membership interest itself from one party to the other as part of the judgment. For these reasons, we conclude that a charging order was not the exclusive remedy available to ZUPT, and the trial court did not abuse its discretion by ordering turnover of Gillet’s 45 percent interest in ZUPT.”

Unfortunately for Homer and World Wide Widgets, LLC, no Arizona appellate court has issued an opinion similar to the ZUPT, LLC, vs. Gillet opinion.  WWW will be forced to litigate the issue and hope to get an order at the appellate level requiring transfer of the membership interest to WWW.

Warning for Multi-Member Arizona LLCs

The lesson to be learned from the ZUPT, LLC, vs Gillet case is that all multi-member LLCs should have provisions in their Operating Agreements that provide appropriate remedies if a member of the LLC or the LLC get a judgment against another member.  The Operating Agreement should have language that creates remedies that allow the member or the LLC with the judgment  to get around the exclusive remedy of Section 29-655.  The remedies include a requirement that money be distributed to the creditor from funds payable to the debtor member and a requirement that the debtor member forfeit the debtor member’s membership interest in the LLC.

In an article called “Yet Another Intra-Member Dispute in ZUPT” debt collection attorney Jay Adkisson wrote:

“The decision by the Texas Court of Appeals is, in my humble opinion, right on target, but it by no means reflects (yet) anything like a majority rule or a judicial re-writing of the cold, hard language of the charging order statutes.

Practitioners who are drafting LLC and partnership agreements need to recognize this issue, and confer with the members as to what they want the outcome to be. If one member becomes indebted to the other members or the LLC, do they want to be restricted by a charging order or not? It should be relatively easy to draft around this issue, but in my experience almost nobody does so.”

As a result of ZUPT, LLC, vs Gillet and Jay Adkisson’s advice I have amended my multi-member LLC Operating Agreement to provide special remedies if a member or the LLC get a judgment against another member.

The post Does Your LLC’s Operating Agreement Say What Happens if a Member or the LLC Gets a Judgment Against a Member? appeared first on Arizona Limited Liability Company Law.

    


IRS’ Dirty Dozen Tax Scams of 2017

On February 17, 2017, the Internal Revenue Service announced the conclusion of its annual “Dirty Dozen” list of tax scams. The annual list highlights various schemes that taxpayers may encounter throughout the year, many of which peak during tax-filing season. Taxpayers need to guard against ploys to steal their personal information, scam them out of money or talk them into engaging in questionable behavior with their taxes.

“We continue to work hard to protect taxpayers from identity theft and other scams,” said IRS Commissioner John Koskinen. “Taxpayers can and should stay alert to new schemes which seem to constantly evolve. We urge them to do all they can to avoid these pitfalls – whether old or new.”

Perpetrators of illegal schemes can face significant fines and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shut down scams and prosecute the criminals behind them. Taxpayers should keep in mind that they are legally responsible for what is on their tax return even if it is prepared by someone else.

Here is a recap of this year’s “Dirty Dozen” scams:

Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill or refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2017-15)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2017-19)

Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. Though the agency is making progress on this front, taxpayers still need to be extremely cautious and do everything they can to avoid being victimized. (IR-2017-22)

Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. There are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. (IR-2017-23)

Fake Charities: Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. IRS.gov has the tools taxpayers need to check out the status of charitable organizations. (IR-2017-25)

Inflated Refund Claims: Taxpayers should be on the lookout for anyone promising inflated refunds. Be wary of anyone who asks taxpayers to sign a blank return, promises a big refund before looking at their records or charges fees based on a percentage of the refund. Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims. (IR-2017-26)

Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses. (IR-2017-27)

Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation to falsely inflate deductions or expenses on their returns to pay less than what they owe or potentially receive larger refunds. Think twice before overstating deductions such as charitable contributions and business expenses or improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit. (IR-2017-28)

Falsifying Income to Claim Credits: Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are sometimes talked into doing this by con artists. Taxpayers should file the most accurate return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution. (IR-2017-29)

Abusive Tax Shelters: Don’t use abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2017-31)

Frivolous Tax Arguments: Don’t use frivolous tax arguments to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims even though they have been repeatedly thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2017-33)

Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. The IRS offers the Offshore Voluntary Disclosure Program  to enable people to catch up on their filing and tax obligations. (IR-2017-35)

The post IRS’ Dirty Dozen Tax Scams of 2017 appeared first on Arizona Limited Liability Company Law.

    

How to Determine if an Arizona LLC is Member or Manager Managed

A client sent me an email in which he said, “the “Arizona Department of Real Estate is asking for ‘a copy of the resolution signed by members stating: whether management of LLC is established as manager/member controlled’.

This is the first time in the 34 years I’ve been forming Arizona LLCs that anybody ever asked that question.  If that is really what the Department of Real Estate wants then it/they are ignorant of Arizona LLC law and are asking for an irrelevant document that does not actually prove the LLC’s type of management.

The type of management of an Arizona LLC is not determined by resolutions signed by the members.  Management type is stated in the Arizona LLC’s Articles or Organization filed with the Arizona Corporation Commission.  Arizona Revised Statutes Section 29-632 states:

“The articles of organization shall state . . . Either of the following statements:

(a) Management of the limited liability company is vested in a manager or managers.

(b) Management of the limited liability company is reserved to the members.”

The Articles of Organization filed with the Arizona Corporation Commission to create an Arizona LLC contains a statement that the LLC is manager managed or member managed.  Anybody who wants to verify the type of management of an Arizona LLC should look up the LLC on the ACC’s website (enter the name of the LLC in the search box on the top right) then click on the link to the Articles of Organization and read the management type set forth in the Articles.

The post How to Determine if an Arizona LLC is Member or Manager Managed appeared first on Arizona Limited Liability Company Law.

    

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