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NEW MEXICO LIMITED LIABILITY COMPANIES

Mary L. was a school teacher who lived with her husband and four children near Seattle, Washington. In the early 1990s, Mary purchased a gray Volkswagen Fox. In all innocence, she titled this car in her own name. Not in her wildest dreams—or nightmares!—could Mary have foreseen the bitter consequences of driving a car with plates that would show up in the computer with her first name, middle initial, and last name.

Years passed. Unexpectedly, Mary fell in love with one of her students, a thirteen-year-old boy. Despite being married, she was unable to control her emotions. One thing led to another and Mary found herself pregnant. In 1997, the affair became known. She was arrested, jailed, and sentenced to eighty-nine months in prison. Given her lack of a criminal record and the fact she posed no threat to society, Mary was released on parole. One of the conditions of the parole was that she would not contact her young lover without permission from the authorities.

Mary carried a pager. The father of her future child, unable—or unwilling—to stay away from Mary, sent her a page with the number of a pay phone. She called him back. That same evening she picked him up in her little gray Volkswagen Fox.

They went to a late movie, Wag the Dog. Then Mary parked her Volkswagen along a street near her home and they talked into the early morning hours. Mary had already packed and had hidden money and her passport in the car. They made plans to flee Seattle together and to make a new life far, far away.

At this point, was there any obstacle to their plans? The parole board had no idea that Mary was violating parole. She was not wanted by the police. No one else knew of their plans to flee. Nor was society in danger.

From Mary’s viewpoint, all was well.

At 2:45 a.m., Seattle policeman Todd Harris was on a routine patrol. He passed a car that was parked along the curb. The parking lights were on. The windows were steamed up, but it appeared there were two occupants.

There was no sign of misbehavior. Nevertheless, Harris noted the Washington license plate number as he drove by. As he continued on his patrol, he ran the number through his computer to make sure the car had not been reported stolen. Several blocks later the name of the registered owner came onto the screen. The car was legally registered and was not stolen, but he recognized the name from reading about the case in the newspapers. Mary Kay Letourneau.

Officer Harris returned, and asked for ID. The two occupants were Mary and the boy. The boy was taken home. Mary was taken to the station, then arrested for violation of parole. On Friday, February 6, 1997, the judge revoked her parole and sentenced her to serve the full eighty-nine months. Leaving aside the morality of meeting with the father of her child, here is the lesson I want you to draw from this story: At the time Mary titled the car, there was not—could not have been—the slightest indication of the troubles that lay ahead. But who among us can guarantee that quiet waters will never see a storm?

After the Letourneau sentencing, I sent a notice to all my clients in the United States and Canada with this headline:

SEVEN YEARS IN JAIL FOR NOT USING A LIMITED LIABILITY COMPANY!

In neither this chapter nor the next will I be discussing all the various uses to which limited liability companies are being put. They have a vast application in the business, banking, partnership, and asset-protection worlds. Endless dozens of books have been and are being written about obtaining tax identification numbers, writing complex operating agreements, registering them in other states as foreign legal entities, and opening bank accounts here and/or abroad. All these uses are beyond the scope of this book. From now on, when I mention LLCs, I refer specifically to a legal entity that has all of the following characteristics:

1. No one will know who owns it unless the owner tells them.

2. It will be filed in New Mexico—a state that protects privacy and does not require an annual report.

3. It will be managed by a single member.

4. When used (such as to buy a vehicle or real estate), it will list a ghost address as the principal place of business.

5. It will cost about $100 to form, and less than $100 a year for the resident agent (a minimum of three years is normally paid ahead).

6. The LLC name will never appear on a state or federal tax return.

For details, see the Appendix.

WHAT IS AN LLC?

You will sometimes hear that a limited liability company is something “new,” but this refers only to the United States. In Europe, LLCs have been used for more than a century. I started using them in Spain forty years ago.

Think of an LLC primarily as a partnership, but without the liability and (now hear this!) without the necessity of actually having a partner. Like a corporation, it is a legal entity that stands alone, but it lacks the many onerous bookkeeping details and annual meetings required of a corporation.

INCOME TAX CONSEQUENCES

Since the IRS treats one-member LLCs as sole proprietorships for tax purposes, there are no income tax consequences. If you use your LLC for a part-time business, for example, you will merely report earnings and expenses on Schedule C and submit it with your 1040 tax return. Repeat: The income—if any—is listed on your personal tax return. Nowhere on the tax form will the name of your limited liability company appear. As far as the IRS is concerned, your limited liability company is invisible.

PROOF OF OWNERSHIP

“How can I prove I own the company,” I’m often asked, “if my name doesn’t appear anywhere?” If privacy is the goal, I recommend New Mexico LLCs because they do not show ownership in the Articles of Organization (which are a public record). The best way to prove ownership, then, is to have the original LLC documents coupled with an operating agreement. This explains who owns and operates the company. If the sole objective of the LLC is to hold title to vehicles, an operating agreement is seldom necessary, but it is necessary for opening bank accounts as well as for holding title to real estate. This is a specialized field so I suggest you check with an attorney (see Appendix).

VEHICLE REGISTRATION DATA

The excerpt below is from Duncan Long’s book Protect Your Privacy.

According to the FBI, a Washington, D.C., police officer was attempting to extort $10,000 from a married man who had visited a gay bar. The officer had apparently employed a law-enforcement computer system to identify automobile license plates of cars that had been recorded as being outside the bar, and then linked the plates to the names and addresses of the vehicles. He then cross-referenced to see if the men were married, and if they were, he attempted to extort money from them. According to the FBI, the officer threatened to send photos showing the men at the bar to wives and employers if the victims didn’t cough up silence money.

You may never visit a gay bar, but think of the many other dangers of allowing your name (and sometimes even your home address!) to appear on your vehicle’s registration. Just one example: You innocently park in front of a home known to harbor a meth lab. You may get a visit from the police. Or perhaps the home is a so-called safe house for a Muslim terrorist cell. You may get a visit from the FBI. Or suppose the home is that of a woman who’s being stalked by her insanely jealous ex-husband—you might even get beaten up!

Each of my four vehicles is titled in a separate New Mexico LLC. The address for each New Mexico LLC is overseas. We often lend our vehicles to friends. What if one of these friends would happen to park in front of the wrong home or the wrong bar? Nothing.

QUESTIONS & ANSWERS

What, step-by-step, do I have to do to buy a car and title it in an LLC?

Remember, this must be a cash purchase, and normally from a private party. (Craigslist is the best way to track down the vehicle of your choice.) Let’s assume the name of your company is Ready to Go LLC:

1. There will be a box on the title for the name of the buyer to be filled in. Print “Ready to Go LLC” and then sign your first initial and last name underneath that, or just after it.

2. List the LLC’s ghost address. This is where the new title will be mailed to you.

3. When the time comes to sell it, use the same information in the box for seller.

In most states, that’s all there is to it. It’s no different than buying or selling a vehicle in your own name. A few states, however, may present problems. California—desperate for cash!—passed a draconian law in 2011 that apparently requires all LLC owners to pay an annual $800 franchise fee. My attorney has worked out an alternate privacy solution for California residents and property using a Privacy Trust. Privacy trusts are more involved than LLCs, but for special situations in which an LLC won’t do the trick, they can be used in every state except Louisiana. The details are too complicated to go into here, but see the Appendix on where to go for further information on this emerging privacy strategy.