Publication 576
Transfer or Acquisition of
A Controlling Interest in an
Entity with an Interest in
Real Property
Pub 576 (6/08)
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Publication 576
Transfer or Acquisition of
A Controlling Interest in an
Entity with an Interest in
Real Property
Pub 576 (6/08)
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Publication 576 (6/08)
Table of Contents
Introduction ………………….......................................................................................................1
Definitions …………………..........................................................................................................1
Frequently asked questions …………………..............................................................................3
1. When does an entity have an interest in real property? .....................................................3
2. When does the transfer or acquisition of a controlling interest occur? ..............................3
3. When are persons considered to be acting in concert? ......................................................4
4. When will separate transfers or acquisitions of interests in the same entity
be added together? ............................................................................................................5
5. What happens if an additional interest in the same entity is transferred or acquired? .......6
6. What happens if a transaction results in both a transfer and acquisition
of a controlling interest? ....................................................................................................6
7. How is the real estate transfer tax computed for this type of conveyance? .......................6
8. Does the additional tax imposed by section 1402-a of the Tax Law also apply? ..............7
9. Who is liable for the real estate transfer tax and additional tax? .......................................7
10. When should the real estate transfer tax return be filed? ...................................................8
11. Where should I send the real estate transfer tax return? ....................................................9
Need help? ......................................................................................................................Back cover
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Introduction
Article 31 of the Tax Law imposes a real estate transfer tax on each conveyance of real property or interest in
real property when the consideration exceeds $500. The tax is computed at a rate of two dollars for each $500
of consideration or fractional part thereof. An additional tax is imposed on each conveyance of real property
used in whole or in part as a personal residence when the consideration for the entire conveyance is $1 million
or more. The additional tax is computed at a rate of one percent of the consideration or part thereof attributable
to the residential real property.
Among the types of conveyances subject to tax, the real estate transfer tax applies when a person or group of
persons acting in concert transfers or acquires a controlling interest in a partnership, corporation, or other entity
with an interest in real property. When this occurs, a real estate transfer tax return must be filed, and any tax
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due must be paid no later than the 15 day after the conveyance.
This publication answers frequently asked questions related to the transfer or acquisition of a controlling
interest in an entity with an interest in real property. The information presented does not represent a change in
any policies or procedures but is intended to provide guidance for the relevant provisions of Article 31of the
Tax Law and Part 575 of the Real Estate Transfer Tax Regulations (20 NYCRR). Although accurate, the
information in this publication has been simplified. If there is any discrepancy between this publication and the
Tax Law or regulations, the Tax Law and regulations will govern.
Definitions
The following terms used in this publication are derived from definitions contained in Article 31of the Tax
Law or section 575.1 of the New York State Real Estate Transfer Tax Regulations. As necessary, they have
been edited to apply specifically to transfers and acquisitions of a controlling interest of an entity that has an
interest in real property.
Person - means an individual, partnership, limited liability company
(LLC), society, association, joint stock company, corporation, estate,
receiver, trustee, assignee, referee or any other person acting in a
fiduciary or representative capacity, whether appointed by a court or
otherwise, any combination of individuals, and any other form of
unincorporated enterprise owned or conducted by two or more persons.
Controlling interest - means 1) in the case of a corporation, either 50%
or more of the total combined voting power of all classes of stock of the
corporation, or 50% or more of the capital, profits, or beneficial interest
in the voting stock of such corporation; and 2) in the case of a
partnership, association, trust, or other entity, 50% or more of the
capital, profits, or beneficial interest in the partnership, association,
trust, or other entity.
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Publication 576 (6/08)
Real property - means every estate or right, legal or equitable, present
or future, vested or contingent, in lands, tenements or hereditaments,
including buildings, structures and other improvements thereon, which
are located in whole or in part within the state of New York. It does not
include rights to sepulture.
Interest in real property - includes title in fee, a leasehold interest, a
beneficial interest, an encumbrance, development rights, air space and
air rights, or any other interest with the right to the use or occupancy of
real property, or the right to receive rents, profits or other income
derived from real property. It shall also include an option or contract to
purchase real property. It does not include a right of first refusal to
purchase real property.
Consideration - in the case of a transfer or acquisition of a controlling
interest in any entity that owns real property, consideration means the
fair market value of the real property or interest therein, apportioned
based on the percentage of the ownership interest transferred or acquired
in the entity.
Fair market value - means the amount that a willing buyer would pay a
willing seller for real property. It is generally determined by appraisal
based upon the value of the real property at the time of the conveyance.
It is not net fair market value, which is fair market value less the amount
of any mortgages on the property.
Conveyance - means the transfer or transfers of any interest in real
property by any method, including but not limited to the transfer or
acquisition of a controlling interest in any entity with an interest in real
property.
Grantor - when the conveyance consists of a transfer or an acquisition
of a controlling interest in an entity with an interest in real property,
grantor means the entity with an interest in real property or a
shareholder or partner transferring stock or partnership interest,
respectively.
Grantee means the person who obtains real property or interest therein
as a result of a conveyance.
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Frequently asked questions
1. When does an entity A corporation, partnership or other entity has an interest in real property
have an interest in real when it has a direct or indirect interest in real property, including title in
property? fee, a leasehold interest, a beneficial interest, an encumbrance,
development rights, air space and air rights, an option or contract to
purchase real property, or any other interest with the right to the use or
occupancy of real property or the right to receive rents, profits, or other
income derived from real property.
An entity does not have an interest in real property because of a mere
ownership of a right of first refusal to purchase real property, or
ownership of notes or other receivables secured by interests in real
property.
Example 1: Partnership X is owned by Individuals A and B,
with each owner having a 50% interest in the capital and profits
of the partnership. Partnership X has a ten-year lease for one
floor of a 60-story office building in Manhattan. Individual A
transfers his 50% partnership interest in X to Individual C. The
transfer of this partnership interest in X constitutes a transfer by
Individual A and an acquisition by Individual C of a controlling
interest in an entity with an interest in real property. (See
question 6 for information on what happens if a transaction
results in both a transfer and an acquisition of a controlling
interest.)
Example 2: Corporation X has 2 stockholders. Individual A
owns 90 shares of the voting stock (90%) and Individual B owns
10 shares of the voting stock (10%). Corporation X owns 60% of
the voting stock of Corporation Y, which owns real property
located in New York State. Individual A, by virtue of owning
90% of the stock of Corporation X, has a 54% interest in
Corporation Y (90% interest in Corporation X multiplied by the
60% interest Corporation X has in Corporation Y). Individual A
sells his 90 shares of stock in Corporation X to Individual G.
Individual A, by selling his 90 shares of Corporation X stock,
has transferred a controlling interest (54%) in an entity that owns
real property (Corporation Y.) The transfer is subject to the real
estate transfer tax.
2. When does the In the case of a corporation that has an interest in real property, the
transfer or acquisition of transfer or acquisition of a controlling interest in the corporation occurs
a controlling interest when a person, or group of persons acting in concert, transfers or
occur? acquires a total of 50% or more of the voting stock in the corporation, or
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50% or more of the capital, profits or beneficial interest in the voting
stock of the corporation.
In the case of a partnership, association, trust or other entity that has an
interest in real property, the transfer or acquisition occurs when a
person, or group of persons acting in concert, transfers or acquires a
total of 50% or more of the capital, profits or beneficial interest in the
partnership, association, trust or other entity.
A transfer or acquisition of a controlling interest is deemed to have
occurred when a person, or group of persons acting in concert,transfers
or acquires a controlling interest in separate transactions occurring
within a three-year period. (See questions 3 and 4 for further
information on when a controlling interest is transferred or acquired.)
3. When are persons Persons are acting in concert when they have a relationship in which
considered to be acting in one person influences or controls the actions of another. For example, if
concert? a parent corporation and a wholly-owned subsidiary each sell or
purchase a 25% interest in an entity, the two corporations will be
considered to have acted in concert to transfer or acquire a controlling
interest (50%) in the entity.
If the individuals or entities are not related, persons will be treated as
acting in concert if the sellers or purchasers have negotiated and will
consummate the transfer of ownership interests in a manner that
indicates that they are acting as a single entity. If the transfers or
acquisitions are completely independent, then the transfers or
acquisitions will be treated as separate transfers or acquisitions. The
grantors or grantees may be required to provide sworn statements that
their transfers or acquisitions are independent of each other. Factors that
indicate whether persons are acting in concert include the following:
1. The transfers or acquisitions are closely related in time.
2. There are few grantors or grantees.
3. The contracts of sale contain mutual terms.
4. The grantors or grantees have entered into an agreement in
addition to the sales contract binding themselves to a course of
action with respect to the transfer or acquisition.
Example 3: Individuals P, Q, R, and S each own a 25%
membership interest in a limited liability company
(LLC) that owns real property located in New York
State. Individuals B, C, D and E, together, negotiate to
buy 100% of the LLC interests with B, C, D and E each
buying the 25% interests of P, Q, R, and S, respectively.
The contracts of B, C, D and E are identical and the
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purchases are to occur simultaneously. B, C, D, and E
have also negotiated an agreement binding them to a
course of action with respect to the acquisition of the
LLC, and the terms of the agreement also govern their
relationship as owners of the LLC. The acquisitions by
B, C, D, and E would be treated as a single acquisition
that is subject to the real estate transfer tax.
Example 4: Corporation X is a publicly held corporation
whose stock is owned by many unrelated shareholders.
Corporation X owns an interest in real property located in
New York. D, E, F, and G, pursuant to a plan to gain
control of X, make a tender offer of $100 per share to the
public shareholders to acquire such control. As a result of
the tender offer, D, E, F and G acquire, in total, 80% of
the voting stock of X with each getting 20%. The
acquisition by D, E, F, and G would be treated as a single
acquisition that is subject to the real estate transfer tax.
4. When will separate Transfers or acquisitions of interests in the same corporation,
transfers or acquisitions partnership, or other entity occurring within three years are added
of interests in the same together to determine if a transfer or acquisition of a controlling interest
entity be added together? has occurred. However, they will also be added together if it appears
that the transfers or acquisitions were intentionally timed to occur more
than three years apart as part of a plan to avoid the real estate transfer
tax. An example of this would be if a shareholder acquired 40% of the
stock in a corporation and simultaneously contracted for the purchase of
an additional 20% of the voting stock of the corporation three years and
one day later.
Example 5: In December 2005, Corporation A acquires
from Corporation X a 10% interest in Partnership B,
which owns real property located in New York State. In
March 2007, A acquires an additional 25% interest in
Partnership B from X. In January 2008, A acquires a 25%
interest in Partnership B from Individual Y. Since A
acquired a total of 50% or more of the partnership interest
in Partnership B within a three-year period, A is deemed
to have acquired a controlling interest. (See question 10
regarding when the real estate transfer tax return must be
filed.)
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5. What happens if an If there is a transfer or acquisition of a controlling interest in an entity
additional interest in the on which the real estate transfer tax must be paid and there is a
same entity is transferred subsequent transfer or acquisition of an additional interest in the same
or acquired? entity within three years, the second transfer or acquisition is also
subject to the real estate transfer tax, and returns pertaining to the
subsequent transfer or acquisition of a controlling interest must be filed.
(See question 10 for information regarding when the real estate transfer
tax return must be filed.)
6. What happens if a The tax is only imposed once when there has been both a transfer and
transaction results in acquisition of a controlling interest in the same conveyance.
both a transfer and
acquisition of a
controlling interest?
7. How is the real estate Section 1402 of the Tax Law imposes a real estate transfer tax on each
transfer tax computed for conveyance of real property or interest in real property when the
this type of conveyance? consideration exceeds $500. The tax is computed at a rate of two
dollars for each $500 of consideration or fractional part thereof.
In the case of the transfer or acquisition of a controlling interest in an
entity that has an interest in real property, consideration means the fair
market value of the real property or interest in real property, based on
the percentage of the ownership interest transferred or acquired in the
entity.
Fair market value means the amount that a willing buyer would pay a
willing seller for real property. It is generally determined by appraisal
based upon the value of the real property at the time of the conveyance.
It is not net fair market value, which is fair market value less the amount
of any mortgages on the property.
Example 6: Partnership R acquires 60% of the stock of
Corporation S. Corporation S owns commercial property
located in New York State. The property is currently
encumbered by a mortgage with a balance of $200,000.
Based on an appraisal, the real property has a fair market
value of $1,000,000. The consideration is $600,000
($1,000,000 x 60%). The real estate transfer tax is $2400
($600,000 / $500 x $2.00).
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8. Does the additional Section 1402-a of the Tax Law applies to the conveyance of residential
tax imposed by section real property or interest therein when the consideration for the entire
1402-a of the Tax Law conveyance is $1 million or more. Residential real property means any
also apply? premises that may be used in whole or in part as a personal residence,
including a one-, two-, or three-family house, an individual
condominium unit, and a cooperative apartment unit. The additional tax
is imposed at a rate of 1% of the consideration attributable to the
residential real property.
When an entity has an interest in residential real property and the
consideration is $1 million or more, the additional tax imposed by
section 1402-a of the Tax Law applies.
Example 7: Individual S owns 100% of the membership interest
in a limited liability company (LLC). The only asset owned by
the LLC is a single-family home located in Southampton that is
encumbered by a mortgage for $600,000. The residence has a
fair market value of $1.5 million. S has used the home as a
summer residence and also has rented it to others. S transfers his
100% interest in the LLC to Individual T for $900,000. In
addition to the real estate transfer tax imposed under section
1402 of the Tax Law, an additional tax of $15,000 ($1.5 million
x 100% x 1%) would be due.
Example 8: Two individuals, H and W, each own a 50%
membership interest in an LLC. The only asset owned by the
LLC is an individual residential condominium unit located in
Manhattan. The condominium is not encumbered by any
mortgage and has a fair market value of $1.8 million.
Individual H transfers his 50% membership interest in the LLC
to Individual W. The consideration for real estate transfer tax
purposes is $900,000 ($1.8 million x 50%). Since the
consideration for the transfer is less than $1 million, the
additional tax does not apply. However, the transfer is subject to
the real estate transfer tax.
9. Who is liable for the Under section 1404 of the Tax Law, the grantor is liable for payment of
real estate transfer tax the real estate transfer tax. When the grantor fails to timely pay the tax
and additional tax? or is exempt from tax, the grantee has the duty to pay the tax.
When the grantee has the duty to pay the tax because the grantor has
failed to pay, the tax shall be the joint and several liability of the grantor
and the grantee.
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Under section 1402-a of the Tax Law, the grantee is liable for payment
of the additional tax. If the grantee is exempt from tax, the grantor has
the duty to pay the tax.
10. When should the real For each transfer or acquisition of any interest in an entity with an
estate transfer tax return interest in real property, both the grantor and grantee must file a joint
be filed? return, Form TP-584, Combined Real Estate Transfer Tax Return,
Credit Line Mortgage Certificate, and Certification of Exemption from
the Payment of Estimated Personal Income Tax, whether or not there is
a tax due. Form TP-584 must be filed and the tax due (if any) must be
paid within 15 days of the effective date of the transfer or acquisition of
a controlling interest in an entity with an interest in real property. Form
TP-584 must also be filed within 15 days of the effective date for each
subsequent transfer or acquisition of an interest in the same entity
occurring within three years.
Example 9: Individual A and Individual B each own 50% of the
voting stock of Corporation X. Corporation X owns real
property located in New York State.
On October 1, 2005, Individual A sells 30% of the voting stock
in Corporation X to Individual C. On April 1, 2008, Individual
B sells 25% of the voting stocking in Corporation X to
Individual C. After the sale by Individual B, C now owns 55%
of the voting stock of Corporation X and thus has acquired a
controlling interest in an entity with an interest in New York real
property. Since Individual C acquired a 55% interest in
Corporation X within a three-year period, both conveyances are
subject to the real estate transfer tax, based on the respective
percentage of the ownership interest in the entity that Individual
A and Individual B each conveyed.
The consideration is equal to the percentage of interests
conveyed by Individual A and Individual B, multiplied by the
fair market value of the real property owned by Corporation X at
the time of each respective conveyance on October 1, 2005, and
April 1, 2008. Form TP-584 must be filed, and any real estate
transfer tax due on the conveyances of both Individual A and
Individual B must be paid, within 15 days of the effective date of
the conveyance of Individual B’s shares to Individual C (April
16, 2008).
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11. Where should I send Send the return, along with documentation pertaining to the transfer or
the real estate transfer acquisition of a controlling interest, and payment directly to the Tax
tax return? Department at the address shown on the return.
To obtain copies of the forms and instructions, see Need help? on the
back cover.
NOTE: A Publication is an informational document that addresses a particular topic of interest to
taxpayers. Subsequent changes in the law or regulations, judicial decisions, Tax Appeals
Tribunal decisions, or changes in Department policies could affect the validity of the
information contained in a publication. Publications are updated regularly and are accurate on
the date issued.
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Publication 576
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