Selling a plane out of an LLC?

[claycookiemonster]

I am in the process of acquiring the lease on a hanger. The current leaseholder is an LLC which also owns the aircraft within the hanger. The current owner of the LLC wishes to retain ownership of the aircraft, but let go of the hanger. To separate the two, he is considering having the LLC sell the plane to himself and I would then purchase the LLC from him and become the leaseholder of the hanger.

Leaving aside details of the transfer of the leaseholding LLC to me, what re-registration or documentation will be required by the current owner of this aircraft to sell it to himself? What forms are required? What complexities am I not seeing?

 

[JDA_BTR]

Far easier to arrange with the lessor to release the current lessee (the LLC) with immediate lease renewal to you. Likely no additional charges, you hold the lease, the LLC goes away with the plane still in hand. The lease may have a subrogation (sublet) clause and you could simply sublet from the LLC with the same terms as the original lease. But I like the direct option better.

On the other hand, if the lease cannot be changed, then buying the LLC will cost very little but then the LLC stands to have gains/losses on the aircraft when sold. So the LLC will have tax considerations on the sale of the asset from the LLC.

If you can only have the hangar if the LLC owns it, best to have the current owner of the LLC sell the plane to himself, so that the LLC does not own it before you buy the LLC. Then buy the LLC for $1 and voila - lease in hand. But do consult with a very good tax consultant because you could be the one holding all the tax liability at the end of the year because the LLC is responsible for all that. Depending on the LLC structure the airplane owner could find themself paying a lot of use/sales tax or whatever else the state requires for transferring an aircraft. And you in your new LLC have to show that the airplane sale to the other party was properly handled and taxed.

Personally I would not want to assume any tax liabilities in the LLC. I would opt to lease directly from the lessor (best choice), or sublease from the LLC and let the current LLC owner handle the tax problems (okay, not best). Taking on the LLC is a potential massive costly headache.

 

[bmellis11]

I am in the process of acquiring the lease on a hanger. The current leaseholder is an LLC which also owns the aircraft within the hanger. The current owner of the LLC wishes to retain ownership of the aircraft, but let go of the hanger. To separate the two, he is considering having the LLC sell the plane to himself and I would then purchase the LLC from him and become the leaseholder of the hanger.

Leaving aside details of the transfer of the leaseholding LLC to me, what re-registration or documentation will be required by the current owner of this aircraft to sell it to himself? What forms are required? What complexities am I not seeing?

You and the seller should hire attorneys to guide you through this process. I assume you're considering this because the airport won't let you take assignment of the lease. If they will let you take assignment then that's the better option. A few issues you may want to look into based on your proposed transaction (I'm sure there are more):

1) the hangar lease may contain a clause that terminates the lease if ownership of the LLC changes

2) the LLC may have liabilities that you are unaware of and those liabilities may affect you as a member, including past tax liabilities (e.g., the LLC may have written off airplane expenses as a business expense and the IRS may disagree in an audit). You could get an indemnity from the seller for these risks, but you would have to sue the seller to reimburse you.

3) the LLC would have to file a tax return that covers the sale of the air plane (and any other transactions in the tax year) and you would be the member signing off on that tax return and accepting any liability for misrepresentations or tax liabilities

4) the lease may require the LLC, as tenant, to be the one that owns the aircraft that is kept in the hangar (i.e., no subleasing). If you register your aircraft to the LLC, then any liabilities of the LLC could be turned into liens against your plane.

 

[JDA_BTR]

One other thought. If somehow the llc is a partnership it is easy to transfer the asset out of the partnership and then buy the llc from the partners. Asset transfers in partnerships are generally not taxable events to either the partnership or the partner according to the IRS. Sales tax won’t apply. Use tax may need paid by the assuming owner.

Back to the original question the standard FAA form would need to be filled out showing ownership transfer to the new party.

 

[claycookiemonster]

Fundamentally...

The underlying challenge is that the current owner/leaseholder wants to begin the process of getting out of flying. Selling the plane outright may not be out of the question. Also, the airport is facing a re-development and may have changed the terms of the lease they offer to new leaseholders. If the current leaseholder sells the lease to me, I get the newer and harsher lease. If I buy their LLC, their lease continues since no ownership change has happened, and I enjoy the previous lease's terms.
Before I can purchase the current LLC to acquire their lease, they must sell the plane out of the LLC. You're saying that they'd have to go through the FAA's re-registration process since on paper the owner has changed? That makes sense.

The tax and accounting ramifications of the sale of the aircraft (on paper) would be the same as selling any other asset?

 

[JDA_BTR]

An LLC can be treated as an s-corp, a partnership, a c-corp or a sole proprietorship. The tax treatment depends on the tax election of the LLC. That's why you need to know all the ins and outs or have a CPA look at the books and tell you. It has to be clean with the IRS and the state. The lease is a legal contract that has to be followed. Again you have to read it very carefully and know all the ins/outs or have a lawyer advise you about it.

The FAA is the easiest part. The LLC owner files the FAA registration change form showing himself as the new owner. Then he has his insurance changed from LLC to personal ownership.

 

[Lucky Lemon]

There are too many variables for an internet forum to give accurate advice.

You really need to consult with a lawyer to ensure that the lease will be what you expect, and the seller needs to consult with a lawyer and tax professional determine the consequences of distributing the airplane out of the LLC.

Depending on the ownership of the LLC and the elections made it might be a non-event or have large tax implications.