In 2005, a life insurance client of ATCG wished to restructure the ownership entities relating to 125 separate properties located in eight different counties in California. This restructuring involved the transfer of a fractional interest in the joint venture partnership from one company entity to another company entity.
Because these properties had not changed ownership, and had therefore not been upwardly reassessed for as much as twenty years in some cases, the potential for catastrophic increases in property tax liabilities was huge (millions of dollars annually) and unacceptable.
Consequently, it was imperative that the transfers be:
1) Designed in such a way that they qualified for the exclusions from change in ownership determination provided in the CA Revenue & Taxation Code.
2) Documented through deeds, and Change in Ownership Statements filed along with the deeds, in such a way that it was clear that the transfers qualified for these exclusions.
More than 60% of the properties were located in Los Angeles County so the agreement on the part of the LA Assessor to our assertion that these transfers were exempt from a change in ownership determination was crucial. Therefore, we met personally with the head of the Property Transfer Section of that office, outlined the details of the proposed restructure and received a preliminary indication from him that the exclusions did in fact apply. We then began a long series of phone conversations and written correspondence with staff in the Legal Division of the CA State Board of Equalization (SBOE) with the goal of receiving from them an Opinion Letter stating their position on the proposed transfer. These communications involved detailed explanations of the structures of the parent corporation and the various real property ownership entities. In this effort, we worked closely with legal and financial executives at the client company as well as their outside accounting advisor.
Ultimately, the SBOE did issue a lengthy opinion letter clearly analyzing the transfers and providing the statutory rationale supporting the qualification of these transfers for the exclusion from change in ownership determinations. With this opinion letter in hand, our client made the decision to proceed with the restructurings and to file deeds evidencing the transfers for each of the properties.
Subsequent to the filings of the deeds, we wrote to all of the affected county Assessors alerting them to the deed filings, and providing them copies of the SBOE opinion letter asserting that there should be no change in ownership determination. Finally, over the next few months, we made repeated phone calls to the individuals in each Assessor office assigned to process these transfers, monitoring the process and making ourselves available to answer any questions they had.
As a result of this exhaustive and cautious effort, not a single one of the 125 properties in eight counties was deemed by the Assessor to have undergone a change in ownership and therefore, none of the properties were reassessed nor were subject to increased taxes.