It is widely understood by estate planners and taxpayers that under California’s property tax regime, a transfer of ownership of real property triggers reassessment. What is not always understood, however, is that reassessment of real property interests also is often triggered by changes in control and changes in ownership of legal entities that own or lease an interest in California real property. Since a change in ownership of such a legal entity often does not result in a recorded deed, or other notice, that would inform county assessors of the situation, the California State Board of Equalization requires the filing of Form BOE-100-B, Statement of Change in Control and Ownership of Legal Entities.
The filing requirement is triggered by the change in ownership. Thus, estate planners should bear in mind that, for example, the death of the owner of an LLC holding interests in real property in California triggers a Form BOE-100-B filing requirement.
Nevertheless, just because Form BOE-100-B must be filed does not necessarily mean that reassessment will follow. Some circumstances that would otherwise be changes in ownership or control do not result in reassessment because of an exclusion. Notably, transfers between spouses or registered domestic partners are excluded from change in ownership and do not trigger reassessment. Cal. Rev. & Tax. Code §§ 63 and 62(p); 18 CCR § 462.180(d)(2). In the estate tax context, this can mean that there is only a change in ownership triggering reassessment upon the death of the second spouse or registered domestic partner. Yet, Form BOE-100-B must be filed, even when the interspousal exclusion applies.
An exclusion also may apply to legal entities held by trusts. For irrevocable trusts, the transfer by the trustor of an ownership interest in a legal entity holding an interest in real property into a trust in which the trustor-transferor is the sole present beneficiary, or into a trust in which the trustor-transferor retains the reversion and the present beneficial interest of any other person does not exceed 12 years is excluded from change in ownership.
For revocable trusts, the transfer of real property or an ownership interest in a legal entity holding an interest in real property by the trustor to a trust which is revocable by the trustor is excluded from change in ownership. However, a change in ownership does occur at the time that a revocable trust becomes irrevocable unless the trustor-transferor remains or becomes the sole present beneficiary or unless otherwise excluded from change in ownership (e.g., because of the interspousal or registered domestic partner exclusion).
The deadline for filing Form BOE-100-B can come up quickly. Generally, the form must be filed no later than 90 days of change of control, or, where the Board makes a written request for a Form BOE-100-B, within 90 days of such request. Estate planners should be aware that where a change in ownership in real property occurs by reason of death, the statement shall be filed within 150 days after the date of death or, if the estate is probated, at the time the inventory and appraisal are filed.
Where Form BOE-100-B is not timely and properly filed, the penalties are 10 percent of the taxes applicable to the new base year value reflecting the change in control or change in ownership of the real property owned by the corporation, partnership, or legal entity, or, if no change in control or change in ownership occurred, 10 percent of the current year’s taxes on that property. So, notably, penalties apply for failure to file a complete change in ownership statement irrespective ofwhether it is ultimately determined that no change in ownership occurred.
Estate planners or others with questions about when the Form BOE-100-B must be filed, or what responses are required by the form, may contact members of the property tax team at Winston & Strawn for advice on these matters.