1000 Town Center Drive
Sixth Floor
Oxnard, California 93036
[T] (805) 485-1000
[F] (805) 988-8387
California Extends Deadline for Filing Change of Ownership Statements
Estate Planning, Probate and Trust Law Group Update | 12/28/2011
Posted by: John Andersen
Background and Existing Law:
Change of Ownership Statement for Real Property:
Under existing California law, whenever there is a “change in ownership” of real property, whether due to a sale, gift, death of an owner, or otherwise, a Change of Ownership Statement (“COS”) must be filed with the county assessor’s office. In most cases, this is the responsibility of the person acquiring the property (the transferee) and is satisfied by filing a Preliminary Change of Ownership Report with the county recorder when the deed by which the transferee acquires title to the property is recorded. In cases involving the death of an owner, the COS must be filed by the personal representative of the decedent’s probate estate (if the property is subject to probate) or by the trustee of the decedent’s revocable living trust.
For non-death transfers, the COS must be filed within 45 days after the change in ownership occurs. For transfers resulting from the death of an owner, the COS must be filed at or prior to the time the inventory and appraisal of the decedent’s estate is filed with the court (if the property is subject to probate) or within 150 days after the decedent’s death (in all other cases).
There is no penalty for missing these deadlines. The only time a penalty applies is if the county assessor makes a written request that a COS be filed. If the county assessor issues such a written request and a COS is not filed within 45 days thereafter, a penalty is imposed on the transferee equal to the greater of $100 or 10% of the property tax based on the newly assessed value of the property, subject to a cap of $2,500 if the failure to file the COS was not willful.
Form BOE-100-B for Change in Ownership or Control of Entity:
Similar rules apply whenever there is a change of “ownership” or “control” of an entity that owns real property in California. The entity is typically a corporation, partnership or limited liability company (LLC).
A “change of control” of a corporation occurs whenever control of more than 50% of the voting stock of the corporation changes. For example, if a shareholder who owns 48% of the voting stock of a corporation later acquires an additional 4% of the voting stock, a change of control has occurred. Change of control of a partnership or LLC occurs whenever a partner or member who holds less than 50% acquires more than 50% of the total interests in capital and profits of the entity.
A “change of ownership” of an entity occurs whenever the original owner or owners cumulatively transfer more than 50% of the total interests in the entity. For example, assume Husband and Wife create an LLC to which they contribute real property. The next year, they gift a 10% interest in the LLC to each of their two children, A and B. The following year, parents gift an additional 10% interest to each of A and B. If, in year 3, parents gift another 10% interest to each of A and B, a change of ownership will occur because, cumulatively, 60% of the entity will have been transferred, even though neither A nor B has a controlling interest.
A change in ownership or control of a legal entity must be reported to the State Board of Equalization (not the county assessor) on Form BOE-100-B within 45 days after the change occurs. In addition, an entity must file Form BOE-100-B within 45 days after a request by the Board to do so, regardless of whether there has been a change of ownership or control and regardless of whether the entity owns real property.
Under rules that took effect January 1, 2010, an entity that fails to file Form BOE-100-B within 45 days after a change of ownership or control is subject to penalty. Unlike a COS, the penalty does not depend on the Board’s first making a written request that a BOE-100-B be filed. The penalty is 10% of the property tax based on the newly assessed value of the entity’s real property (if a change in ownership or control occurred) or 10% of the current property tax (if no change in ownership or control occurred).
New Law:
Senate Bill 507 (approved by the Governor October 9, 2011) extends the deadline for filing a COS or Form BOE-100-B from 45 days to 90 days after the change in ownership or control occurs, or from the date of a written request therefor from the county assessor or Board of Equalization, whichever is earlier.
As under existing law, the penalty for failing to file a COS only applies if the person or entity responsible for filing the form fails to respond to a written request therefor from the county assessor. The new law, however, increases the $2,500 cap on the penalty to $5,000 for property that is eligible for the homeowner’s property tax exemption (i.e., a principal residence) or $20,000 for property not eligible for the exemption.
SB 507 does not increase the amount of the penalty for failure to timely file Form BOE-100-B with the State Board of Equalization. Similar to current law, the penalty attaches if the form is not filed within 90 days after a change in ownership or control occurs, even if no written request has been issued by the Board.
SB 507 does make it a little easier to obtain relief from the penalty for failing to timely file Form BOE-100-B. First, appeal can be made to the county board of equalization or assessment appeals board, rather than the county board of supervisors. If the appeal is filed within 60 days after being notified of the penalty, the county board of equalization or assessment appeals board may abate the penalty if it finds that the failure to file was due to reasonable cause and not willful neglect. Second, if the State Board of Equalization issues a request for Form BOE-100-B based on erroneous information, the county board of equalization or assessment appeals board must abate the penalty if the person or entity responsible for complying with the request notifies both the Board and the county assessor of the error within 60 days after being notified of the penalty.
The new law takes effect on January 1, 2012.
Planning Considerations:
Clients who own real property in a family limited partnership, LLC or other entity should consult with their advisors before transferring interests in the entity to children or others to avoid inadvertently triggering a change in ownership or control of the entity. In the event of the death of a partner, member or shareholder of an entity that owns real property, the entity must act promptly to determine whether a change of ownership or control has resulted and, if so, file Form BOE-100-B with the State Board of Equalization within 90 days.