Our bank needs to reclassify all our non-voting preferred stock into voting common stock to satisfy new federal regulatory capital requirements. After the reclassification, the group of former preferred stockholders as a whole will end up owning more than 50% of our voting stock, even though no single stockholder crosses that line and none of us are acting together as a group. Does this trigger New York's controlling-interest transfer tax or gains tax rules?

Plain-English summary

CrossLand Savings, FSB, a federally chartered thrift that owned and leased New York real property, needed to bring itself into compliance with new regulatory capital requirements under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). Its Cumulative Preferred Stock -- roughly 74% of its equity -- had previously counted as regulatory capital but no longer qualified under the new Office of Thrift Supervision rules. The bank's board concluded the only practical fix was to reclassify its Series A and Series B Preferred Stock (which had only limited voting rights) into ordinary voting Common Stock, subject to separate stockholder votes on each series.

Based on May 1990 market values, Common Stock holders held about 26.12%, Series A holders about 24.77%, and Series B holders about 49.11% of CrossLand's total stock value. After the reclassification, the CURRENT common stockholders were expected to fall below 50% of the resulting common stock, while the FORMER preferred stockholders as a group would end up holding more than 50%.

The Department worked through the "controlling interest" definition -- 50% or more of an entity's voting stock, acquired by a person OR a group of persons "acting in concert" -- and found no taxable acquisition:

• No single stockholder crossed the 50% threshold. No individual common stockholder transferred 50%+ of their interest, and no individual preferred stockholder acquired 50%+ of the resulting voting stock.
• The preferred stockholders as a class were not "acting in concert." The regulations (Gains Tax Reg. § 590.45(b), mirrored in Transfer Tax Reg. § 575.6) define "acting in concert" by factors like closely-timed acquisitions, few purchasers, mutual contract terms, and a binding side-agreement coordinating a course of action -- classic hallmarks of a coordinated takeover, not a stockholder vote. Here, every stockholder -- both before and after the reclassification, and during the vote itself -- could vote and act entirely independently, with no side agreement restricting anyone's actions. The Department held that simply taking a vote at a special shareholders' meeting does not, by itself, make the voting stockholders "act in concert."

Because neither the single-acquirer threshold nor the acting-in-concert threshold was met, the reclassification was not a taxable acquisition of a controlling interest under either the gains tax or the transfer tax.

What this means for you

Banks, thrifts, and corporations restructuring stock to satisfy regulatory capital requirements

A stock reclassification that shifts aggregate voting power toward a class of stockholders (here, former preferred holders) doesn't automatically trigger New York's controlling-interest transfer tax or gains tax rules -- what matters is whether any SINGLE person or a truly coordinated GROUP crosses the 50% line, not whether an unrelated class of stockholders collectively ends up above 50% through independent action.

Corporate and securities attorneys structuring shareholder votes

"Acting in concert" requires real coordination -- closely related timing, few purchasers, mutual contract terms, or a binding side-agreement dictating a course of action. A routine special shareholders' meeting vote, where each stockholder votes independently without any such coordination, does not by itself satisfy the standard, even where the vote's outcome shifts aggregate ownership percentages.

Accountants and tax professionals

The Real Property Transfer Gains Tax analysis here no longer applies (repealed for transfers on or after June 15, 1996), but the "acting in concert" factor test remains a core part of current Real Estate Transfer Tax controlling-interest analysis -- cross-reference against the grandfather-date/aggregation-window doctrine in TSB-A-92(2)R when multiple stock transactions are involved.

Common questions

Q: If a shareholder vote causes one class of stockholders to collectively cross 50% ownership, is that a taxable controlling-interest transfer?
A: Not automatically -- only if a single person, or a group truly "acting in concert" (with real coordination, not just a shared vote), crosses the 50% threshold.

Q: Does approving a corporate action at a shareholders' meeting make the voting shareholders "act in concert"?
A: No, by itself. The Department requires actual coordination -- closely timed acquisitions, few parties, mutual contract terms, or a binding side-agreement -- not just a common vote outcome.

Q: Is the Real Property Transfer Gains Tax analysis in this ruling still relevant?
A: No, it was repealed for transfers on or after June 15, 1996. The transfer tax "acting in concert" analysis remains current.

Q: Can I rely on this ruling for my own corporate restructuring?
A: No. This advisory opinion binds the Department only as to the petitioner and the specific facts described.

Citations and references

Statutes and regulations:

• Section 1440, 1441 of the Tax Law (gains tax imposition and rate)
• Section 590.6 of the Gains Tax Regulations (definition of "controlling interest")
• Section 590.45(b) of the Gains Tax Regulations ("acting in concert" factors)
• Section 1401, 1402 of the Tax Law (transfer tax "conveyance," "controlling interest," and imposition)
• Section 575.1, 575.6 of the Transfer Tax Regulations (conveyance, controlling interest, and acquisition rules)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a90_8r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(8)-R
Real Property
Transfer Gains Tax
Real Estate Transfer Tax
October 24, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M900608B

On June 8, 1990, a Petition for Advisory Opinion was received from CrossLand Savings,
FSB, 211 Montague Street, Brooklyn, New York 11201.
The issue raised by Petitioner, CrossLand Savings, FSB, is whether the recapitalization of
the Petitioner by reclassifying non-voting preferred stock of the Petitioner into voting common stock
is a transfer or an acquisition of a controlling interest in a corporation which has an interest in real
property in New York State and, therefore, subject to the Real Property Transfer Gains Tax
(hereinafter the "gains tax") or the Real Estate Transfer Tax (hereinafter the "transfer tax").
Petitioner owns and leases real property located in New York State. The Petitioner currently
has three issues of stock outstanding: (i) 13,828,878 shares of common stock par value $1.00 per
share (the "Common stock"), (ii) 5,175,000 shares of $1.8125 Cumulative Convertible Preferred
Stock, Series A (the "Series A Preferred Stock), and (iii) 2,500,000 shares of $12.75 Cumulative
Preferred Stock, Series B (the "Series B Preferred Stock" and, together with the Series A Preferred
Stock, the "Preferred Stock"). The Common Stock is the only class of voting stock. The Preferred
Stock currently has the right to vote only in certain limited circumstances, including proposed
amendments to the Petitioner's charter that may adversely affect the holders of the Preferred Stock.
The Petitioner intends to ask the holders of the Common Stock, Series A Preferred Stock and
Series B Preferred Stock to vote on the following proposed amendments, among others, to the
Petitioner's charter: (a) to reclassify each share of Series A Preferred into specified number of shares
of Common Stock and (b) to reclassify each share of Series B Preferred Stock into a specified
number of shares of Common Stock (the "Reclassification"). Under the Petitioner's charter, the
reclassification of the Series A Preferred Stock to Common Stock requires the affirmative vote of
the holders of a majority of the shares of Common Stock and of two-thirds of the shares of the Series
A Preferred Stock. The reclassification of the Series B Preferred Stock requires the affirmative vote
of the holders of a majority of the shares of the Common Stock and of a majority of the shares of the
Series B Preferred Stock.
The holders of the Common Stock currently hold 26.12 percent, the holders of the Series A
Preferred Stock currently hold 24.77 percent, and the holders of the Series B Preferred Stock
currently hold 49.11 percent of the total market value of the outstanding stock of the Petitioner,
based on the closing prices of the various issues of stock on the New York Stock Exchange on May
31, 1990. Based on these percentages, it is expected that after the Reclassification, the current
holders of the Common Stock will hold less than 50 percent of the Common Stock, and the
TP-9 (9/88)

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TSB-A-90(8)-R
Real Property
Transfer Gains Tax
Real Estate Transfer Tax
October 24, 1990
former holders of the Preferred Stock will hold more than 50 percent of the Common Stock. Because
the reclassification ratios have not yet been fixed, the exact percentage changes cannot be provided.
The Petitioner believes that the Reclassification is a necessary step in bringing the Petitioner
into compliance with the new regulatory capital requirements established by its primary regulator,
the Office of Thrift Supervision ("OTS") (as successor to the Federal Home Loan Bank Board) from
which the Petitioner holds its charter under the Home Owners' Loan Act of 1933, as amended. These
new regulatory capital requirements are being imposed on the Petitioner as a result of the enactment
of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA").
Cumulative Preferred Stock, which represents approximately 74 percent of the Petitioner's equity
and which counted as regulatory capital when issued, no longer qualifies for inclusion in regulatory
capital as defined by the 0TS regulations promulgated pursuant to FIRREA. Since the Petitioner is
not permitted to include the Preferred Stock in its regulatory capital, it fails to satisfy the new
leverage, tangible and risk-based capital requirements mandated by FIRREA. This failure to meet
the capital requirements could subject the Petitioner to severe regulatory sanctions, unless the plan
filed by the Bank to bring the Bank into compliance with the new requirements is accepted by the
OTS. After consultation with its financial advisor, the Board of Directors of the Petitioner has
concluded that the only practical way to bring the Petitioner intocompliancewith the newcapital
requirements is to reclassify the Preferred Stock into Common Stock and, as a result, the
Reclassification is the principalelement inthe plan filed by the Petitioner with the OTS.
The gains tax is a ten percent on the gain derived from the transfer of real property, which
includes the transfer or acquisition of a controlling interest in any entity with an interest in real
property, where the property is located in New York State and where the consideration for the
transfer is one million dollars or more in accordance with Sections 1440 and 1441 of the Tax Law.
Gains Tax Regulation 590.6 defines the term "controlling interest" to mean:
Question: What constitutes a controlling interest in an entity which has an interest in
real property?
Answer: A controlling interest means:
(1) in the case of a corporation, either 50 percent or more of the total combined
voting power of all classes of stock of such corporation, or 50 percent or moreof the
capital, profits or beneficial interest in such voting stock of such corporation; and
(2) in the case of a partnership, association, trust or other entity, 50 percent or more
of the capital, profits or beneficial interest in such partnership, association, trust or
other entity.

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TSB-A-90(8)-R
Real Property
Transfer Gains Tax
Real Estate Transfer Tax
October 24, 1990
For purposes of the gains tax, in the case of a corporation which has an interest in real
property, the transfer or acquisition of a controlling interest in the corporation occurs when a person
or group of persons, acting in concert, transfers or acquires a total of fifty percent or more of the
voting stock in such corporation.
Gains Tax Regulation 590.45(b) provides as follows:
(b) Question: When is a group of persons acting in concert?
Answer: When the various purchasers have a relationship such that one purchaser
influences or controls the actions of another. For example, if a parent and a wholly owned
subsidiary each purchase a 25-percent interest in an entity, the two corporations will be
considered to have acted in concert to acquire a controlling interest (i.e., 50 percent) in the
entity.
Where the individuals or entities are not commonly controlled or owned, persons will be
treated as acting in concert only when the unity with which the purchasers have negotiated
and will consummate the transfer of ownership interests supports a finding that they are
acting as a single entity. If the acquisitions are completely independent, each purchaser
buying without regard to the identity of other purchasers, then the acquisition will be treated
as separate acquisitions. The transferees must provide affidavits swearing that their
acquisitions are independent of each other. Factors that will indicate whether persons are
acting in concert include the following:
(1) The acquisitions are closely related in time.
(2) There are few purchasers.
(3) The contracts to purchase contain mutual terms.
(4) The purchasers have entered into an agreement in addition to the purchase
contract binding themselves to a course of action with respect to the acquisition.
(emphasis added)
The criteria for "acting in concert" would apply in a similar manner to transferors who are
acting in concert to transfer a controlling interest.
The transfer tax is imposed on each conveyance of real property or interest therein, including
the conveyance of shares in a cooperative housing corporation, when the consideration exceeds
$500.00 in accordance with Sections 1401 and 1402 of the Tax Law.
Transfer Tax Regulation 575.1(e)(1) defines the term "conveyance" to mean the "transfer or
transfers of any interest in real property by any method, including but not limited to sale, exchange,
assignment, surrender, mortgage foreclosure, transfer in lieu of foreclosure, option, trust indenture,
taking by eminent domain, conveyance by liquidation or by a receiver, or transfer or acquisition of
a controlling interest in any with and interest in real property." (emphasis added)

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TSB-A-90(8)-R
Real Property
Transfer Gains Tax
Real Estate Transfer Tax
October 24, 1990
The term "controlling interest" is defined in Transfer Tax Regulation 575.1(b), in part, to
mean in the case of a corporation, either fifty percent or more of the total combined voting power
of all classes of stock of such corporation, or fifty percent or more of the capital profits or beneficial
interest in such voting stock of such corporation.
Further, Transfer Tax Regulation 575.6 provides, in part, that the transfer or acquisition of
a controlling interest occurs when a person, or group of persons acting in concert, transfers or
acquires a total of 50% or more of the voting stock in such corporation.
Transfer Tax Regulation 575.1(d)(4) provides that in the case of the 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.
"(2) Where the individuals or entities are not commonly controlled or owned, persons
will be treated as acting in concert when the unity with which the sellers or purchasers have
negotiated and will consummate the transfer of ownership interests indicates that they are
acting as a single entity. If the transfers or acquisitions are completely independent, each
grantor selling or grantee buying without regard to the identity of the other grantors or
grantees, then the transfers or acquisitions will be treated as separate transfers or acquisitions.
The grantors or grantees may be required to provide a sworn statement that their transfers or
acquisitions are independent of each other. Factors that will indicate whether persons are
acting in concert include the following:
(i)
The transfers or acquisitions are clearly related in time.
(ii)
There are few grantors or grantees.
(iii) The contracts of sale contain mutual terms.
(iv)
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." (emphasis added)
In the instant case, while fifty percent or more of the total combined voting stock of the
corporation is being transferred to the preferred stockholders, no single common stockholder will
transfer fifty percent or more of his interest in the corporation. Also, no single preferred stockholder
will acquire fifty percent or more of the combined voting stock of the corporation. Moreover, neither
the common stockholders nor the preferred stockholders are acting in concert to transfer or acquire
a controlling interest in the corporation. The fact that a vote is being taken at a special stockholders
meeting does not in itself result in the stockholders acting in concert. Both before and after the
reclassification of the Preferred Stock, as well, as during the votes on the reclassification, each
stockholder in the bank is able to vote and take any action as a stockholder independently of all other
stockholders and without any stockholder agreed restrictions on any action to be taken. Accordingly,
the reclassification of the non-voting preferred stockholder's stock into voting common stock

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TSB-A-90(8)-R
Real Property
Transfer Gains Tax
Real Estate Transfer Tax
October 24, 1990
will not constitute the transfer or acquisition of a controlling interest, and, therefore, will not be
subject to either the gains tax or the transfer tax.

DATED: October 24, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.