If you have or can obtain the Acrobat Reader, or have an Acrobat-enabled web browser, you may wish to download or view our December 2009 State & Local Tax Bulletin (a 184K pdf file), containing a printed version of this article and also available via ftp at:

ftp.pmstax.com/state/bull0912.pdf.

Effective January 1, 2010, California will require any entity undergoing a merger, acquisition or other transaction constituting a Proposition 13 change in ownership under Revenue and Taxation Code ("R&TC") section 64(c) or 64(d) to file an appropriate change in ownership statement (BOE Form 100-B) within 45 days of the transaction or face a 10 percent penalty. Cal.SB 816, 2009 Stats.Chap. 622. The new provisions also tighten penalty enforcement, as described below. Currently, no penalties are imposed unless the disclosure statement is not filed within 45 days after the California State Board of Equalization ("BOE") requests the filing.

Existing Statutory Provisions—In Effect through December 31, 2009

R&TC section 64(d) addresses another Proposition 13 "change in ownership" situation, namely where property had previously been transferred to a legal entity in a transaction that was not a Proposition 13 change of ownership because the property's prior owners (the "original co-owners") received the same proportional interests in the transferee legal entity. R&TC section 64(d) specifies that a Proposition 13 "change in ownership" will occur if these original co-owners, in one or more transactions, subsequently transfer ownership interests in the legal entity that cumulate to more than 50 percent of their original co-ownership interests.

The affected entity in a section 64(c) or 64(d) "change in ownership" is required to file a "Statement of Change in Control and Ownership of Legal Entities" (Form 100-B) with the BOE, listing all of the parcels of California real property held by the entity. R&TC §§ 480.1, 480.2. The BOE forwards the completed filing to the affected county assessors, who reassess the property.

Currently Form 100-B must be filed within 45 days after the pertinent transaction, but no penalty is imposed unless the affected entity fails to return the form within 45 days after the BOE mails a request for the form. R&TC §§ 480.1, 480.2, 482(b). BOE requests are typically made as a result of disclosures on the entity's annual California income tax return disclosing the transaction (Questions J and K on FTB Form 100). The penalty for failing to timely file is generally 10 percent of the entity's annual property tax on the reassessed values. R&TC § 482(b). However, under current law there are fairly lenient exceptions under which the penalty may be abated.

New Provisions—Effective January 1, 2010

First, in order to avoid a penalty, the Form 100-B must now be filed within 45 days after closing any section 64(c) or 64(d) "change in ownership" transaction, rather than 45 days after the BOE requests the form. This not only accelerates the filing, but also requires taxpayers to independently ascertain what transactions might constitute a "change in ownership."

Second, the 10 percent penalty will be automatically applied if Form 100-B is not filed within 45 days of the transaction. R&TC § 482(b). There no longer is an automatic waiver if the filing is made within 60 days of a late filing notice from the BOE.

Third, any request for a reasonable cause waiver of a late filing penalty must now be applied for and secured from the County Board of Supervisors (rather than the BOE). R&TC § 483(b). Moreover, entities with properties in several counties will separately need to request penalty waivers from each county, rather than making one request to the BOE.

Implications for Future Transactions Involving Entities with California Realty

A close reading of the statute and its effective dates indicates that any 2009 "change in ownership" should be governed by existing rules and not be penalized as long as Form 100-B is completed within 45 days of a BOE request. The BOE website indicates the same. However, those entities completing 2009 transactions may want to avoid any questions by filing Form 100-B within 45 days after the transaction.

This material is not intended to constitute a complete analysis of all tax considerations. Internal Revenue Service regulations generally provide that, for the purpose of avoiding United States federal tax penalties, a taxpayer may rely only on formal written opinions meeting specific regulatory requirements. This material does not meet those requirements. Accordingly, this material was not intended or written to be used, and a taxpayer cannot use it, for the purpose of avoiding United States federal or other tax penalties or of promoting, marketing or recommending to another party any tax-related matters.

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