Gift-Tax Planning With Series LLC Cells in Texas

Introduction

Texas founders and high-net-worth individuals frequently utilize gifting strategies to reduce federal estate tax exposure, but without proper structuring, gifts can trigger unnecessary taxes or lose asset protection. Inexperienced advisors may overlook the advantages of series LLC cells for segregating gifted assets, leading to inefficiencies or compliance issues. Are you using series LLCs to enhance your gift-tax planning while maintaining control and protection in 2025?

At Kewal Krishan & Co, our expert tax advisors help Texas clients save an average of $50,000 annually, potentially totaling $775,000 over a decade through innovative gifting and tax strategies. This blog explores gift-tax planning with series LLC cells in Texas for 2025, grounded in the Texas Business Organizations Code (TBOC) and Internal Revenue Code (IRC), with detailed examples and compliance steps.

Texas’s no-state-gift-tax environment (Texas Tax Code § 211.001) amplifies federal benefits, and series LLCs under TBOC § 101.601 allow asset isolation for efficient gifting. Begin refining your gifting strategy today with insights from Our Tax Planning Services.

Understanding Gift-Tax Planning With Series LLC Cells in Texas

Federal gift tax under IRC § 2501 applies to transfers exceeding the annual exclusion ($18,000 per donee in 2025, indexed under IRC § 2503(b)) or lifetime exemption ($13.99 million in 2025 under IRC § 2505, aligned with estate exemption). Texas imposes no state gift tax, making it ideal for leveraging federal exclusions.

Series LLCs, authorized in Texas under TBOC § 101.601, consist of a “parent” LLC with “series” or “cells,” each with separate assets, liabilities, and members, treated as distinct entities for protection purposes (TBOC § 101.602). Gift-tax planning involves gifting interests in specific series, allowing segregation of assets (e.g., real estate in one cell, securities in another) while maintaining control over ungifted series.

Key Benefits

• Asset Segregation: Each series protects gifted assets from other liabilities (TBOC § 101.602), ideal for family gifting without commingling.
• Valuation Discounts: Gifts of minority interests in series may qualify for discounts (20-40%) for lack of control/marketability, reducing taxable value (IRC § 2512, Rev. Rul. 93-12).
• Federal Exclusions: Use annual exclusion per donee per series if structured properly; lifetime gifting uses unified credit.
• Texas Advantage: No state tax enhances federal savings; series LLCs offer flexibility without multiple entities.

Federal gifts reported on Form 709 if over annual exclusion; Texas franchise tax on series LLCs calculated on combined margin (Texas Tax Code § 171.101, Comptroller Rule 3.584). For details, see IRS Publication 559 and Texas Comptroller’s Series LLC Guide.

Detailed Example: Gifting Via Series LLC Cells

Consider Mr. Thompson, a Texas entrepreneur with $10 million in assets: $4 million real estate, $3 million securities, $3 million cash/business interests. He gifts to two children using a series LLC.

• Setup: Forms series LLC (TBOC § 101.601), creating three cells: Cell A (real estate), Cell B (securities), Cell C (cash/business).
• Gifting: Gifts 25% interest in Cell A ($1 million FMV, discounted 30% for minority = $700,000 taxable) to each child, using $18,000 annual exclusion per donee ($36,000 total), reporting $664,000 on Form 709, using lifetime exemption.
• Tax Savings: Discounts reduce taxable gift by $600,000 total ($300,000 per child), saving $240,000 estate tax if not gifted (40% rate). No Texas gift tax.
• Protection: Each cell isolates liabilities (e.g., real estate lawsuit affects only Cell A) (TBOC § 101.602).
• Franchise Tax: Combined revenue $500,000, margin $350,000 (70%), tax $2,625 (0.75%), prorated if cells separate.

Net: Gifts $2 million FMV assets with $1.4 million taxable value, preserving exemption for larger estate.

Alternative Scenario

Direct gifting without discounts: $2 million taxable, using more exemption ($800,000 at 40% future tax = $320,000). Series LLC saves $80,000.

Step-by-Step Guide for Taxpayer Compliance

To implement gift-tax planning with series LLC cells in Texas for 2025, follow these steps:

1. Form Series LLC: File Certificate of Formation with Texas Secretary of State, specifying series (TBOC § 3.010, § 101.601); draft operating agreement defining cells.
2. Fund Cells: Transfer assets to specific series, obtaining appraisals for valuation (IRC § 2512).
3. Determine Gift Value: Apply discounts for minority/lack of marketability; consult appraiser for defensibility (Rev. Rul. 93-12).
4. Execute Gifts: Transfer membership interests via assignment, using annual exclusion ($18,000/donee) or lifetime exemption (IRC § 2503).
5. Report Gifts: File Form 709 by April 15, 2026, if over exclusion (IRC § 6075); no Texas gift return.
6. Calculate Franchise Tax: Report combined for parent LLC on Form 05-163/05-169 by May 15, 2026 (Texas Tax Code § 171.101).
7. Monitor Basis: Gifts carry over basis (IRC § 1015), step-up at death if retained.
8. Retain Records: Keep appraisals, agreements, and Forms 709 for three years (IRC § 6001).

For family-limited partnerships in cells, explore Our Tax Planning Services.

Common Pitfalls to Avoid

• Undervaluation: Excessive discounts trigger IRS audits; use qualified appraisers (IRC § 2512).
• Fraudulent Intent: Gifts near creditor claims may be voided (Texas Business & Commerce Code § 24.005).
• Franchise Tax Errors: Treat series as separate for liability but combined for tax (Comptroller Rule 3.584).
• Exemption Misuse: Lifetime gifts use unified credit, reducing estate exemption (IRC § 2001).

Why Work with a Tax Expert?

Gift-tax planning with series LLC cells in Texas requires seamless integration of TBOC, IRC, and valuation principles, where pitfalls like improper discounting can lead to audits or lost savings. Generic advisors may neglect Texas-specific rules or federal reporting, costing thousands. Kewal Krishan & Co specializes in Texas asset transfer strategies, ensuring compliant gifting and maximum tax efficiency. Our expertise resolves complexities, as demonstrated in Our Tax Planning Services.

Conclusion

Gift-tax planning with series LLC cells in Texas for 2025 offers powerful asset segregation and valuation discounts under TBOC and IRC, amplifying federal exclusions in a no-state-gift-tax environment. Proper structuring and compliance are essential to avoid voids or penalties—consult professionals now to execute effective gifting and preserve your wealth.

Call to Action

Schedule a consultation with Anshul Goyal, CPA EA FCA, a licensed U.S. CPA and Enrolled Agent, admitted to practice before the IRS, specializing in tax litigation and cross-border tax for U.S. businesses and Indians in the U.S. Contact us at Kewal Krishan & Co to plan your series LLC gifting.

About Our CPA

Anshul Goyal, CPA EA FCA, is a licensed U.S. CPA and Enrolled Agent, representing clients in IRS tax litigation and assisting with cross-border tax compliance for U.S. businesses and Indians in the U.S. His expertise ensures tailored strategies that maximize savings and ensure compliance.

Disclaimer

This blog provides general information for educational purposes only and does not constitute tax, legal, or financial advice. Tax laws change frequently, and individual circumstances vary. Consult a qualified tax professional before making decisions. The author and firm disclaim liability for actions taken based on this content.

FAQs

1. What are series LLC cells in Texas?

Sub-entities within an LLC with separate assets/liabilities (TBOC § 101.601).

2. How do discounts apply to gifts?

Minority interests may reduce value 20-40% for lack of control (IRC § 2512, Rev. Rul. 93-12).

3. What’s the 2025 annual exclusion?

$18,000 per donee (IRC § 2503(b)).

4. Is there Texas gift tax?

No, per Texas Tax Code § 211.001.

5. What form for gifts?

Form 709 if over exclusion (IRC § 6075).