Legal Entity Ownership Program (LEOP) – Definition of Change in Ownership
In general, there are two types of transfers involving legal entities that result in a change in ownership of the California real property owned by the legal entity. One type of transfer is the transfer of interest in real property to and by a legal entity. The second type of transfer is the transfer of ownership interest in a legal entity that owns real property. The two types of transfers are discussed below. You will find additional information in LTA 2011/016 and AH 401, Chapter 6.
Transfer of Interest in Real Property:
The first type of transfer involves the transfer of any interest in real property between a corporation, partnership, LLC, or other entity and a shareholder, partner, or any other person (including another entity). A change in ownership of the real property occurs upon the transfer, pursuant to Revenue and Taxation Code section 61(j). The property will be subject to reassessment unless an exclusion applies.
Note: This type of transfer should be reported to the local county assessors' office where the real property is located, not with the Board of Equalization.
Transfer of Ownership Interest in Legal Entities:
The second type of transfer involves a transfer of ownership interest in a legal entity that owns California real property. A change in ownership of the real property owned by the legal entity occurs upon either of the two transfer events described below.
(1) A transfer of ownership interests in an entity where a person or entity acquires more than 50 percent of the ownership interest in a legal entity. This type of transfer is referred to as a change in control (See Revenue and Taxation Code section 64(c)) For an example, refer to Property Tax Rule 462.180(d).
(2) This type of transfer is referred to as a cumulative transfer of original co-owners’ interests (commonly referred to as a change in ownership). (See Revenue and Taxation Code section 64(d)) For an example, refer to Property Tax Rule 462.180(d)(2): Ex: #8.
(Refer to Assessors’ Handbook Section 401, Change in Ownership for a discussion of change in control and cumulative transfers of original co-owners’ interests; see page 42 for change in control and page 43 for original co-owner interest transfers.)
*Creation of Original Co-owner Status:
If real property is transferred to an entity in a transaction that is excluded from change in ownership under Revenue and Taxation Code section 62(a)(2), the person(s) or entity(ies) holding the ownership interests in the transferee entity immediately after the transfer are deemed original co-owners for purposes of determining whether a change in ownership occurs upon subsequent transfers of the ownership interests in such entity. If an excluded transfer to a legal entity is made by a trust, the present beneficiaries of the trust are deemed the original co-owners. A subsequent transfer of the original co-owners' interest in an entity is not a change in ownership until cumulatively more than 50 percent of the original co-owners' total ownership interests in the entity have been transferred in one or more transactions.
Only the real property previously excluded from change in ownership is subject to reassessment as of the date cumulatively more than 50 percent of the original co-owners' interests have transferred. This does not apply to real property subsequently acquired by the entity, which would have been reassessed upon acquisition. If, however, cumulatively more than 50 percent ownership interests held by an original co-owner has been transferred and, as a result of the transaction, a person or legal entity has also acquired control (more than 50 percent interest) of the entity, all real property owned by the entity as of the date of change in control would be subject to reassessment, not just the real property previously excluded (See Property Tax Rule 462.180(d)(2).)
Termination of Original Co-owner Status:
Original co-owner status terminates when the real property excluded from reassessment under Revenue and Taxation Code section 62(a)(2) is reappraised or the property interest is transferred out of the entity, regardless of whether an exclusion applies.
Note: A transfer of ownership interest in a legal entity that results in a change in control under section 64(c) or change in ownership under section 64(d) must be reported to the Board of Equalization on the form, BOE-100-B within 90 days of the change. (See Revenue and Taxation Code section 480.1 and 480.2.)
Refer to Filing Requirements and Penalty Provisions for further information.
For more information and examples of transfers of original co-owners' interest in legal entities, refer to subdivision (d)(2) of Property Tax Rule 462.180.