TN 12 (12-17)
PS 01810.011 Florida
A. PS 18-014 Status of Interest in Limited Liability Company as a Countable Resource for Supplemental Security Income (SSI) Eligibility
Date: November 2, 2017
In this case, the Regional Chief Counsel (RCC) concludes that the SSI recipient’s 100% ownership interest in a Limited Liability Company (LLC) is a countable resource for determining the recipient’s SSI eligibility. Under Florida law, because the LLC’s operating agreement entitles the recipient to a distribution based on his 100% ownership interest, he has a “transferable interest” that is personal property. Additionally, since the operating agreement contains no restriction on the transfer of ownership interest, the recipient has the legal right to convert it to cash and use the funds for support and maintenance. Therefore, it is a countable resource.
The RCC also concludes that all of the LLC’s income is attributable to the recipient because Florida law would treat the recipient and the corporation as one person in this case. See below for details.
You have asked whether a Supplemental Security Income (SSI) recipient’s 100% interest in a limited liability company (LLC) is a countable resource for determining the recipient’s eligibility for SSI. You have also asked how to treat the rent from H~ LLC’s operation of the apartment building for income purposes.
The SSI recipient’s interest in the LLC should be considered a countable resource for determining the recipient’s eligibility for SSI. The rent collected by the LLC should be treated as income to the recipient.
F~ (Recipient) currently receives SSI payments. He is the sole member of H~ LLC and has a 100% ownership interest. H~ LLC was incorporated under the Florida Limited Liability Company Act, and its operating agreement states that it will be construed and enforced in accordance with the laws of the state of Florida. By default, the H~ LLC operating agreement requires distributions of gains or losses pro rata to members as a proportion of their ownership percentage interest. The H~ LLC operating agreement allows members to withdraw from the LLC by assigning their interests and receiving a distribution equal to their capital account. Members may transfer their interest to any person.
On June XX, 2015, the G~ Trust sold to H~ LLC real property located in L~, Florida. According to the information provided, the property is an eight-unit apartment building. G~ Trust sold the property for $240,000 and provided interest-free seller financing to H~ LLC. A promissory note executed with the mortgage states H~ LLC will pay G~ Trust $1,500 per month until October 2028.
Recipient lives in one of the eight apartment units and uses another unit as storage. As of August 2017, H~ LLC rented the remaining apartments for a total monthly income of $3,105.
Recipient provided most, but not all, of H~ LLC’s checking account statements from June 2015 through July 2017. The transaction history shows numerous ATM withdrawals and purchases at gas stations, fast food restaurants, and retail stores, as well as payments to Comcast, Tracfone, and Planet Fitness for “Club Fees F~.”
SSI is a general public assistance program for aged, blind, or disabled individuals who meet certain income and resource restrictions and other eligibility requirements. See Social Security Act (Act) §§ 1602, 1611(a); 20 C.F.R. §§ 416.110, 416.202 (2017).* The Act does not define “resources” and provides only a list of certain items excluded in determining the resources of an individual. See Act § 1613(a). However, Congress empowered the Commissioner to promulgate rules and regulations to establish the right to SSI payments. See Act §§ 205(a), 1631(d)(1). Pursuant to that authority, the Commissioner has clarified that resources include “any real or personal property interest that an individual . . . owns and could convert to cash to be used for his or her support and maintenance.” 20 C.F.R. § 416.1201(a) (2017); see Program Operations Manual System (POMS) SI 01110.100B.1; POMS SI 01120.010B. “If the individual has the right, authority or power to liquidate the property, or his or her share of the property, it is considered a resource. If a property right cannot be liquidated, the property will not be considered a resource of the individual. . . .” 20 C.F.R. § 416.1201(a)(1); see POMS SI 01110.100B.1, B.3; POMS SI 01110.115A; POMS SI 01120.010B.
The agency looks to state law to determine an individual’s ability to liquidate his or her ownership interest in property. See POMS SI 01110.500C (noting an ownership interest may vary depending on state law); see also White ex rel. Smith v. Apfel, 167 F.3d 369, 373 (7th Cir. 1999) (stating that “[i]n determining whether . . . accounts are resources, the Commissioner looks to state law to determine whether the conservator has the right, authority or power to liquidate the account. . . .”). H~ LLC was incorporated in Florida, and Florida law governs its operating agreement, so we look to Florida law to determine if Recipient can liquidate his 100% ownership interest in H~ LLC.
Under Florida law, the right to a distribution from an LLC is a “transferable interest.” Fla. Stat. Ann. § 605.0102(66) (West 2017). Such transferable interests are personal property. See Fla. Stat. Ann. § 605.0501 (West 2017). Under H~ LLC’s operating agreement, Recipient is entitled to a distribution based on his 100% ownership interest, so he has a “transferable interest” that is personal property. Recipient’s 100% ownership interest in H~ LLC is therefore a resource if Recipient can convert it to cash or otherwise liquidate it. See 20 C.F.R. § 416.1201(a)(1); POMS SI 01110.100B.1; POMS SI 01120.010B.2.
Florida law allows Recipient to liquidate his ownership interest in H~ LLC. A transferable interest may be transferred absent a restriction of transfer clause contained in the LLC’s operating agreement. See Fla. Stat. Ann. § 605.0502(1), (6) (West 2017); see also Olmstead v. F.T.C., 44 So. 3d 76, 80 (Fla. 2010) (stating that “the sole member in a single-member LLC may freely transfer the owner’s entire interest in the LLC”), overruled by statute on other grounds as stated in Regions Bank v. Hyman, No. 8:09-CV-1841-T-17MAP, 2015 WL 1912251, at *7 (M.D. Fla. Apr. 27, 2015). H~ LLC’s operating agreement contains no restriction on the transfer of Recipient’s 100% ownership interest but instead allows him to transfer it to any person. Further, Recipient’s ownership interest has an associated market value. See e.g., Olmstead, 44 So. 3d at 80 (noting the value of an LLC membership interest to a judgment creditor); Cardella-Navarro v. Navarro, 21 So. 3d 906, 906-07 (Fla. Dist. Ct. App. 2009) (discussing the market value of a transferred interest in an LLC as part of a divorce proceeding) (Cope, J., dissenting). Accordingly, Recipient’s ownership interest in H~ LLC is a resource for SSI purposes and has an associated equity value. See 20 C.F.R. § 416.1201(a)(1); POMS SI 01110.100B.1; POMS SI 01110.400; POMS SI 01120.010B.2.
You have also asked how to treat the rent from H~ LLC’s operation of the apartment building for income purposes. The relevant inquiry in a resource determination is whether the individual could convert the property to cash rather than whether the property is currently generating income. See 20 C.F.R. § 416.1201(a); POMS SI 01110.100B.1; POMS SI 01120.010B. For SSI purposes, Recipient’s ownership interest in H~ LLC should be evaluated by his equity in that resource. See 20 C.F.R. § 416.1201(b). However, even disregarding the equity value of the ownership interest, Recipient’s attempt to use the LLC corporate form to prevent counting of resources and income is improper. Florida courts will pierce the “corporate veil” where a corporation is formed for an improper purpose. Lipsig v. Ramlawi, 760 So. 2d 170, 187 (Fla. Dist. Ct. App. 2000). An improper purpose may be found, for example, where shareholders form a corporation to secrete assets. See Estudios, Proyectos e Inversiones de Centro Am., S.A. (EPICA) v. Swiss Bank Corp. (Overseas) S.A., 507 So. 2d 1119, 1120 (Fla. Dist. Ct. App. 1987). Another “important factor” is “whether corporate funds were used for the individual’s benefit.” Eckhardt v. United States, 463 F. App’x 852, 856 (11th Cir. 2012) (applying Florida law). Here, Recipient is the sole member and has a 100% ownership interest in H~ LLC, and it appears Recipient has used H~ LLC’s checking account funds to pay for his personal expenses including cash withdrawals, food, entertainment, and gym memberships. Where one person dominates a corporation and the veil is pierced, the person and the corporation are “treated as one person under the law.” Raber v. Osprey Alaska, Inc., 187 F.R.D. 675, 678 (M.D. Fla. 1999). Thus, all of H~ LLC’s income may still be considered income of Recipient. See e.g. United States v. Lena, No. 05-80669-CIV, 2008 WL 2774375, at *5 (S.D. Fla. June 11, 2008) (noting the government may pierce the corporate veil to attach assets an individual has attempted to hide behind a legal fiction).
Further, we note that Recipient appears to expend significant effort in leasing units within the H~ LLC property and contributing to its maintenance. An individual who is doing work that is substantial gainful activity (SGA) is not disabled for SSI purposes. See 20 C.F.R. §§ 416.920(a)(4)(i), (b), 416.971. SGA is work that involves doing significant and productive physical or mental duties and is the kind of work usually done for pay or profit, regardless of whether a profit is realized. See 20 C.F.R. §§ 416.910, 416.972. Recipient does both physical and mental work in leasing and maintaining the H~ LLC property and, as described above, the rental income is attributable to Recipient. Accordingly, Recipient may be engaged in SGA as an employee of H~ LLC or as a self-employed person under the applicable SGA tests for such individuals.
Recipient’s interest in H~ LLC should be considered a countable resource. Even if the interest were not a countable resource, all of H~ LLC’s income are attributable to Recipient. Further, given Recipient’s activity in operating and maintaining the rental units at the H~ LLC property, he may be engaging in SGA. We recommend further development of this SGA issue.
. * All references to the C.F.R. are to the 2017 edition.