(25)Transfers of interest in corporations, partnerships, or limited liability companies or other legal entities. Except as discussed below or elsewhere on this page, the transfer of or purchase of ownership interests in legal entities, such as corporate stock, partnership, or limited liability company interests, is not considered a transfer of the real property of the legal entity. [Cal. Rev. & Tax. Cd. §64(a) ; Cal. Code Regs. 18 §462.180(c) .] When an owner of a majority ownership interest in a partnership gets all the remaining ownership interests in the partnership or otherwise becomes the sole partner, the purchase of the minority interests, subject to the application of the step?transaction doctrine, is not a change of ownership of the partnership’s real property. It is immaterial whether the partnership is a continuing or dissolved partnership. [Cal. Rev. & Tax. Cd. §64(c)(2) .] Interspousal transfers of ownership interest in legal entities are not changes of ownership. [Cal. Code Regs. 18 §462.220 .]
PARTNERSHIP TRANSFERS. The amendment of the statute providing that no change of ownership of partnership real property results from the acquisition by a majority partner of the ownership interests of minority partners reverses Zapara v. County of Orange, Cal. Ct. App., (1994) 26 Cal App 4th 464. An uncodified provision of L. 1995, ch. 497 (SB722) (§40) states that the amendment of the statute is declaratory of, not a change in, existing law.
In addition, a reorganization of members of an affiliated group of corporations or of farm credit institutions does not result in a change of ownership for reassessment purposes if the reorganization qualifies as an IRC § 368 reorganization and is accepted as a nontaxable event under California law. Transfers of property among members of an affiliated group of corporations similarly does not result in transfer of ownership.
?Affiliated group? means one or more chains of corporations connected through stock ownership with a common parent corporation if:
(1) 100% of the voting stock, exclusive of any share owned by directors, of each of the corporations, except the parent, is owned by one or more of the other corporations; and
(2) the common parent owns directly 100% of the voting stock, exclusive of any shares owned by directors, of at least one of the other corporations.
[Cal. Rev. & Tax. Cd. §64(b) ; Cal. Code Regs. 18 §462.180(b)(1) .]
Further, no change of ownership occurs from the transfers of stock, partnership interests, limited liability company interests, or any other interests in legal entities between legal entities or by an individual to a legal entity (or vice versa) that result solely in a change in the method of holding title and in which proportional ownership interests of the transferors and transferees, in each and every piece of property represented by the interests transferred, remain the same after the transfer. Also, no change of ownership results from a statutory conversion or merger of a partnership into an LLC or other partnership (or vice versa) when the law of the jurisdiction of the converted or surviving entity provides that it remains the same entity or it succeeds to the assets of the converting or disappearing entity without another act or transfer and the partners or members of the converting or disappearing entity maintain the same ownership interest in profits and capital of the converted or surviving entity that they previously held in the converting or disappearing entity. [Cal. Code Regs. 18 §462.180(d)(4) .]
But the following transfers of interest in a legal entity are considered as transfers of ownership that will trigger a reassessment:
If a corporation partnership, limited liability company, or other legal entity obtains control through direct or indirect ownership or control of more than 50% of the voting stock of a corporation or obtains a majority ownership interest of a partnership, limited liability company, or other legal entity, through the purchase or transfer of corporate stock, partnership, or limited liability company interest or ownership interest, including the purchase or transfer of 50% or less of the ownership interest through which control or a majority ownership interest is obtained. [Cal. Rev. & Tax. Cd. §64(c) ; Cal. Code Regs. 18 §462.180(d)(1) .]
Transfers by the original owner(s) (in one or more transactions) of shares or other ownership interests representing more than 50% of the total interests in an entity that was previously involved in an exempt transfer of property under Cal. Rev. & Tax. Cd. §62(a)(2) . This statutory provision exempts a transfer between an individual and entity or between entities that results only in the method of holding title to the property and in which the proportional interests of the transferor and transferee remain the same after the transfer. [Cal. Rev. & Tax. Cd. §64(d) ; Cal. Code Regs. 18 §462.180(d)(2) .]