Change in Ownership -- Legal Entities (LEOP)
There are generally two types of transfers involving legal entities that may result in a change in ownership of real property. The first type is a transfer of real property between an individual and an entity or between entities. The second type is a transfer of interests within an entity.
The transfer of any interest in real property between a corporation, partnership, or other legal entity and a shareholder, partner, or any other person (including another legal entity) is to be a change in ownership, unless an exclusion applies.
In contrast, purchases or transfers of corporate stock, partnership shares, or ownership interests in other legal entities are not changes in ownership of real property owned by the entity, unless the transfer results in one of the following:
- Change in Control of the legal entity; or
- Cumulative transfer of more than 50 percent of “original co-owners” interests established after the transfer of real property to a legal entity that was excluded from reassessment under section 62(a)(2) or the real property of the legal entity was excluded from reassessment because a transfer of legal entity
interests was excluded as proportionate under section 62(a)(2).
Legal entities that own or lease real estate in California are required to report to the Board of Equalization Legal Entity Ownership Program (LEOP) within 90 days of when there is a change in control and/or change in ownership. Late or failure to report to the Board of Equalization will result in penalties.
The Legal Entity Ownership Program (LEOP) is managed by the Board of Equalization (BOE). The form BOE-100-B Statement of Change in Control and Ownership of Legal Entities is filed with the BOE and reviewed by the BOE. Once the BOE determines that either there is a change in control or a change in ownership has occurred, then that interest is subject to reassessment. The board distributes all the filing information to the county assessors. It is the responsibility of the county assessor to reassess the property and apply applicable penalties.
See the Board of Equalization Legal Entity Ownership Program (LEOP) for more information.
If you hold title to your real property or you are a lessee of a property where you conduct your business as any of the followings:
- Corporations
- Limited Liability Companies (LLC)
- Partnerships
- Joint Ventures
- Massachusetts Business trusts
- Real Estate Investment Trust
The owners of interest in a legal entity which obtains ownership of property in a transaction excluded from change of ownership. For example, A and B purchase the property together each with 50% ownership. Later, owners A and B decide that it would be best hold title to the property in a legal entity. The owners of the legal entity are A and B, each with 50% ownership. Owners A and B records a deed transferring from A and B to AB Legal Entity. This is a proportional interest transfer and under the revenue and taxation code, this establishes A and B to be the Original Co-Owners.
Once an “Original Co-Owner” status is established, transfers from the original co-owners which do not result in more than 50% transfer will not be reassessed. However, when the legal entity cumulative transfer is more than 50% of the Original Co-Owner’s interest, then 100% of the legal entity is reappraised. This is true even if there is no change in control. If there is a change in control in the legal entity, then 100% of the legal entity is reappraised.
Control of a legal entity is direct or indirect ownership or control of more than 50 percent of the ownership interest in that entity. An individual or legal entity is in direct control of a legal entity when it obtains more than 50 percent of the voting stock or a non-affiliated corporation, or obtains a majority interest in any partnership, limited liability company, or other legal entity. When an entity undergoes a change in control, all the property owned by that entity is reappraised, not just the percentage transferred.
(Refer to Revenue and Taxation Code section 64(c)(1) which specifies that a change in control is a change in ownership of the real property; and Property Tax Rule 462.180(d)(1). Additionally, change in control is discussed in Chapter 6 of Assessors’ Handbook Section 401, Change in Ownership.)
Yes, because you operate your business as a partnership. Any changes, gifts, transfers or death of a partnership is a change in ownership and must be reported to BOE. However, some of these changes may not result in a reassessment. Examples of exclusions are inter-spousal and registered domestic partners. Any transfer between parent and child is not excluded in the legal entity.
Yes. Any changes to the ownership must be reported to BOE.
There are two circumstances that require the filing of a form BOE-100-B:
1. When there is a change in control or change in ownership of a legal entity.
2. When a entity is requested by the Board of Equalization to file regardless of whether or not a change in control or change in ownership of the legal entity.
If the change in control or change in ownership occurs on or after January 1, 2012, then the acquiring person or legal entity must file the BOE-100-B form within 90 days of the event date.
If the change in control or change in ownership occurs after January 1, 2010 but before January 1, 2012, then the acquiring person or legal entity must file the BOE-100-B form within 45 days of the event date.
If the change in control or change in ownership occurred on or before December 2009, the law required the acquiring person or legal entity to file within 45 days of the event date. However, the penalty does not apply unless the person or legal entity failed to file a form BOE-100-B within 45 days of the Board's written request.
There is a 10% penalty for late or failure to file the BOE-100-B. The 10% penalty is calculated as follows: If the real property is reassessed as a result of change in control or change in ownership, then the penalty is 10% of taxes applicable to the new base year value of the real property.
If the real property is not reassessed as a result of change in control or change in ownership, then the penalty is 10% of the current year's taxes.
See the Board of Equalization Legal Entity Ownership Program (LEOP) for more information.