The legal landscape for family investment vehicles in Washington shifted dramatically after the Antio LLC v. Department of Revenue decision of the Washington Supreme Court.  In Antio the taxpayers were a group of investment funds organized as limited liability companies.  These funds acquired investors through private offerings and invested in debt instruments.  The LLCs themselves provided no services—their only income came from investments.

Historically such LLCs in Washington were able to deduct investment income when calculating their B&O tax liability.  However, on October 24, 2024, the Court ruled that the group of investment funds in Antio were not eligible for the deduction under RCW 82.04.4281(1)(c).  This created serious uncertainty around who can claim the B&O deduction for investment income.

Recognizing this uncertainty, on April 26, 2025 the Legislature passed House Bill 2081 in an effort to clarify the intent of the relevant RCW language.  The bill made it clear that the activity of personal investments is generally not considered “engaging in business: and therefore should not be subject to B&O tax.  It directed the Washington Department of Revenue (DOR) to issue guidance further clarifying what constitutes investment income that is not considered engaging in business.  The bill became effective July 27, 2025.

What Does the New Law Say About Family Investment Vehicles?

HB 2081 specifies that certain persons may deduct income derived from investments regardless of whether or not the investments are incidental to their primary business purpose.  This includes family investment vehicles and recipients of distributions from them.

The definition of family investment vehicles includes:

1. The estate of any decedent, or
2. An inter vivos or testamentary trust—provided the grantor and all beneficiaries are either members of the same family as defined in RCW 83.100.046, nonprofit organizations, or both.

While the statute provides some clarity, it doesn’t fully address the more common limited liability company structure many families use.  Many individuals and most family trusts invest through LLCs because they offer liability protection while serving as pass-through tax entities for investments.  Although the Legislature did not list every type of person or entity eligible for the deduction, leaving that task to the DOR, the intent was clearly for individuals and family investment vehicles to benefit.  Unfortunately, to date there has been no guidance issued by the DOR with respect to LLCs or other investment vehicles.

Voluntary Disclosure Agreements (VDAs)

While we wait for guidance, expected sometime this Fall, the DOR has created a Voluntary Disclosure Agreement program as a way for taxpayers to comply with the changing B&O tax regime without incurring penalties or interest for delayed filings.  While there are clear benefits to this program such as limiting the look back period to 4 years and waiving the 39% in potential penalties, the concern is unnecessarily reporting if not required to do so.  The DOR is conducting this in two calendar phases.  If audited during one of these two phases, a company can comply with the VDA requirements at that point.  Importantly, the VDA program is only available for companies which are not already registered with the DOR.  It was specifically set up for unregistered companies to pay prior tax obligations.  It is not for amending previous returns of registered companies, so it appears there is no penalty relief for registered taxpayers that underreported taxable income.

The Antio case is a serious problem for registered taxpayers who, up until recently, assumed that investment income would be offset by an investment income deduction.  If the DOR were to disagree with the availability of an investment income deduction for a registered taxpayer, the penalties would be 39% plus statutory interest from the original due date of the tax (the statutory interest rate is 6% for 2024 and 7% for 2025).  In most cases the DOR could go back for the last four years and assess additional taxes, penalties and interest.  Of course late payment penalties seem very unreasonable since until the Antio case came down last Fall, no one even realized that the investment interest deduction might not be available.

DOR Guidance Needed – What Should You Do Now?

In a recent Washington State Tax Forum the DOR representatives made it clear that they are still trying to clarify many of these open issues.  There were more questions than answers, but one thing was evident: the DOR is actively working to issue guidance for tax professionals and taxpayers about how to treat family investment income under the new law.

Unfortunately, the best course of action is probably to wait and monitor.  Keep an eye out for DOR guidance, which is expected this Fall.  In the meantime:

• Reach out to the DOR with questions or information that could help shape their interpretation of the law.
• Stay up to date through the WA DOR Website for latest updates https://dor.wa.gov/forms-publications/publications-subject/tax-topics/investments
• Consider enrolling unregistered companies under the State VDA program. However, that and other decisions regarding these complex tax matters should only be made in conjunction with your CPA or other tax counsel.

For questions about this, or any other legal and tax questions about family investment vehicles and estate planning, please contact any of the lawyers in our Estate Planning, Probate and Private Wealth Services team.