My brother and I are partners in a family realty partnership that, on paper, owns two unrelated New York properties -- but our partnership agreement has always allocated Property A entirely to me and Property B entirely to him (separate income, separate capital accounts, separate distribution on dissolution), even though title to both properties has always been recorded in our individual names as tenants-in-common (not the partnership's name), for accounting/administrative reasons. We're proposing to liquidate the partnership and simultaneously correct the recorded title so each of us becomes sole owner of 'our' respective property. Does liquidating the partnership and correcting title this way trigger New York's Real Estate Transfer Tax or Real Property Transfer Gains Tax?

Plain-English summary

Heinrich Realty Company was a realty partnership between brothers Jonathan and David Heinrich, treated for tax purposes as owning two unrelated New York properties: Property A (valued at $1.8 million) and Property B (valued at $700,000). But recorded legal title to both properties had always actually been in the Heinrich brothers' individual names as tenants-in-common -- not the partnership's own name.

A partnership that was really two separate economic arrangements. The partnership's Articles of Partnership specifically provided that, from 1982 onward, all net income, loss, and cash flow from Property A would go entirely to David Heinrich, and all net income, loss, and cash flow from Property B would go entirely to Jon Heinrich -- with separate capital accounts tracking each property's activity for each brother, and only unrelated general partnership activities split equally between them. Each brother was also individually responsible for capital contributions and liabilities tied to "his" property. The partnership agreement's dissolution provision confirmed this: upon liquidation, Property A (or its sale proceeds) would go entirely to David, and Property B entirely to Jon.

The proposed transaction. The brothers proposed to liquidate the partnership and, at the same time, correct the recorded title on both properties to reflect the beneficial ownership that liquidation would produce -- making Jonathan the sole record and beneficial owner of Property A, and David the sole record and beneficial owner of Property B.

Why it's exempt. New York's transfer tax and gains tax both exempt conveyances that are a "mere change of identity or form of ownership or organization" with no change in beneficial ownership. The Department applied its contemporaneous ruling in 115 Spring Street Company, TSB-A-94(3)R -- involving a cooperative housing partnership where each partner's beneficial interest was tied solely to the specific unit they occupied, recognized independent of the entity's nominal title -- to reach the same conclusion here. Because the partnership agreement had, since 1982, already made Jonathan the sole economic owner of Property A and David the sole economic owner of Property B (income, losses, capital, and liquidation rights all flowed that way), the brothers' beneficial ownership interests never actually changed as a result of the liquidation -- only the recorded paperwork would catch up to match a beneficial-ownership split that had existed all along. The Department held both the liquidation itself and the accompanying title correction were a mere change of identity or form of ownership, exempt from both the transfer tax and the gains tax.

What this means for you

Family or closely-held partnerships where each property is really "owned" by one partner internally

If your partnership agreement has always specially allocated a specific property's income, losses, capital, and liquidation proceeds entirely to one particular partner -- even though title sits in a shared or differently-named entity -- liquidating the partnership and correcting the recorded title to match that partner's actual economic interest can be a tax-exempt "mere change of form," because nothing about beneficial ownership actually changes.

Real estate and business succession attorneys structuring or unwinding family partnerships

The key factual anchor here is that the special allocation provisions (income, capital, liquidation rights all tied to a specific property, per partner) existed from early in the partnership's life, well before the proposed liquidation -- supporting the conclusion that beneficial ownership had already vested with each partner individually, and the liquidation was merely formalizing an existing arrangement rather than creating a new one.

Accountants and tax professionals reviewing older partnership liquidation transactions

The Real Property Transfer Gains Tax discussed in this ruling was repealed for transfers occurring on or after June 15, 1996 and is no longer a live concern for new liquidation transactions -- only the Real Estate Transfer Tax mere-change exemption remains relevant today.

Common questions

Q: Does liquidating a partnership that owns real estate always trigger New York transfer tax?
A: Not if the beneficial ownership of the property doesn't actually change as a result -- for example, if the partnership agreement had already allocated a specific property's economics entirely to a specific partner, liquidation just formalizes what was already true, and that's a tax-exempt mere change of form.

Q: Does it matter that legal title had always been in the individual partners' names, not the partnership's name?
A: Not for this analysis -- the Department looked past the recorded title to the underlying beneficial ownership established by the partnership agreement's economic allocations, which is what actually controls the mere-change-of-form exemption.

Q: Is the Real Property Transfer Gains Tax discussed in this ruling still relevant today?
A: No -- it was repealed for transfers occurring on or after June 15, 1996 and does not apply to current transfers.

Q: Can I rely on this ruling for liquidating my own family partnership?
A: No. This is an advisory opinion binding the Department only as to Heinrich Realty Company and the specific facts described. Your own partnership agreement's allocation provisions need their own analysis to confirm beneficial ownership was truly already fixed per-partner.

Citations and references

Statutes and prior opinions:

• Section 1401(e) of the Tax Law (definition of "conveyance" -- includes a conveyance upon liquidation or by partition)
• Section 1402 of the Tax Law (RETT on conveyances over $500 consideration)
• Section 1405(a)(6) of the Tax Law (mere-change-of-form exemption from the transfer tax)
• Section 1440.7 of the Tax Law (gains tax definition of "transfer of real property")
• Sections 1441, 1443.1 of the Tax Law (gains tax on transfers of $1 million+; repealed by Chapter 309 of the Laws of 1996 for transfers on/after June 15, 1996)
• Section 1443(5) of the Tax Law (mere-change-of-form exemption from the gains tax)
• 115 Spring Street Company, Adv Op Comm T&F, March 30, 1994, TSB-A-94(3)R

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a94_4r.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-94 (4)R
Real Property
Transfer Gains Tax
Real Estate Transfer Tax
April 19, 1994

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M931109A

On November 9, 1993, a Petition for Advisory Opinion was received from Heinrich Realty
Company, 700 Rock Beach Road, Rochester, New York 14617.
The issues raised by Petitioner, Heinrich Realty Company, are:
1.

Whether the liquidation of Petitioner will be subject to the New York Real
Property Transfer Gains Tax (hereinafter the "gains tax") and the New York
State Real Property Transfer Tax (hereinafter the "transfer tax").

2.

Whether the correction of title to reflect beneficial ownership distributed
upon the liquidation of Petitioner in the two properties held as tenants-in­
common by Jonathan and David Heinrich individually will be subject to
either the gains tax or the transfer tax.

Petitioner is a realty partnership consisting of two partners, brothers Jonathan and David
Heinrich. Petitioner is treated as the owner of two pieces of real property located in New York. The
properties, Property A and Property B, are neither contiguous nor adjacent to each other. Property
A is currently valued at $1.8 million dollars and Property B is valued at $700,000.
Although Petitioner is treated as the owner of Property A and Property B, title to the two
properties is recorded in the name of Jonathan and David Heinrich as tenants-in-common.
The Articles of Partnership of Petitioner provide, in pertinent part, as follows:
ARTICLE II
Name, Place and Purpose of Partnership
*

*

*

2.03. Purpose. The purpose of the Partnership is to continue ownership of
the Schedule A and Schedule B Properties, to lease such Properties and to provide
for the respective interests of each of the Partners in said Properties. After December
31, 1981, all Net Income or Loss and Cash Flow with respect to Schedule A Property
shall be allocated to Dave Heinrich, and all Net Income or Loss and Cash Flow with
respect to Schedule B Property shall be allocated to Jon Heinrich, it being the intent
of the parties from and after that date to reflect with respect to Dave Heinrich all
aspects of the operations of the Schedule A Property and to reflect with respect to Jon

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Real Estate Transfer Tax
April 19, 1994
Heinrich all of the aspects of the operations of the Schedule B Property. It is the
further purpose of the partnership to invest in, hold and manage income producing
real estate and to invest in ventures, partnerships, corporations and other business
arrangements with respect to real estate. All Net Income or Loss and Cash Flow,
except as above set forth with respect to Schedule A Property and Schedule B
Property, shall be allocated equally between the Partners.
2.04. Title. Although legal title to each of the Properties is as set forth on
Schedule E, ownership has consistently been treated as belonging to the Partnership
since its formation and will continue to be so treated during the life of this
Agreement. Except as specifically set forth on Schedule E, it is the intent of the
Partners that legal title to Partnership Assets be held in the name of the Partnership.
ARTICLE III
Capital Contributions
The contributions to the capital of the Partnership shall include the following:
3.01. Contributions. Prior to January 1, 1982, all contributions to the capital
of the Partnership were made equally by each of the Partners. From and after
December 31, 1981, any capital contributions required with respect to the Schedule
A Property shall be made by Dave Heinrich, and any capital contributions required
by the Schedule B Property shall be made by Jon Heinrich. Capital contributions
required by Schedule A Property shall be in such amounts as Dave Heinrich shall
deem necessary. Contributions required by Schedule B Property shall be in such
amounts as Jon Heinrich shall deem necessary. All other contributions required for
operation of the partnership shall be made equally by each of the Partners.
*

*

*

3.03. Adjustments to Capital Accounts. The capital accounts of the Partners,
for purposes of this Agreement, as of January 1, 1982, shall be prepared by an
accountant selected by the Partners. After December 31, 1981, the capital account
of Dave Heinrich will not reflect the Net Income or Net Loss from the Schedule B
Property, and the capital account of Jon Heinrich shall not reflect the Net Income or
Net Loss from the Schedule A Property.
ARTICLE IV
Distributions, Net Income and Net Losses
4.01. Distributions. The net Cash Flow of the Partnership with respect to the
Schedule A Property in excess of the operating reserve provided for in Section 4.02
will be distributed to Dave Heinrich. The net Cash Flow of the Partnership with
respect to the Schedule B Property in excess of the operating reserve provided for in

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Section 4.01 will be distributed to Jon Heinrich. All other distributions of Cash Flow
shall be made to the Partners equally.
4.02. Operating Reserve. The Partnership may retain from its Cash Flow
with respect to the Schedule A Property the amount Dave Heinrich determines
necessary to meet the reasonably anticipated operating expenses of the Partnership
with respect to such property. The Partnership may retain from its Cash Flow with
respect to the Schedule B Property the amount determined necessary by Jon Heinrich
to meet the reasonably anticipated operating expenses of such property.
4.03. Net Income and Net Losses. The Net Income and Net Loss of the
Partnership from the Schedule A Property for each Fiscal Year shall be allocated to
Dave Heinrich. The Net Income and Net Loss of the Partnership for each Fiscal Year
from the Schedule B Property shall be allocated to Jon Heinrich. The Net Income
and Net Loss of the Partnership for all other activities shall be allocated to the
Partners equally.
*

*

*

ARTICLE VI
Acts and Omissions
In the event that either Partner shall incur a liability or be required to act with
respect to a Property which is not allocated to him, such Partners shall make the
payment or do the act required to maintain the Property, and the cost of such payment
or act shall create a debt owing to him from the other Partner. Such debt shall be
repaid out of the first Cash Flow from the Property for which the liability was
incurred or from the distribution of proceeds of any sale of refinancing of such
property. Except as hereinabove set forth, neither Partner shall be liable to the other
for any act or omission.
ARTICLE IX
Dissolution and Liquidation
*

*

*

9.02. Liquidation. Upon dissolution of the Partnership, the business of the
Partnership shall be promptly wound up and terminated, and the Schedule A
Property, or the assets received in exchange for such property, to§ether with the
remainder of his capital account, shall be distributed to Dave Heinrich. The Schedule
B Property, or the assets received in exchange for such property, together with the
remainder of his capital account, shall be distributed to Jon Heinrich. All other assets
shall be distributed to the Partners equally. Each Partner shall pay all debts and

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liabilities of the Partnership which are allocated to their respective Properties,
which debts and liabilities they shall assume on dissolution of the Partnership.
The Partners propose to liquidate Petitioner. Upon liquidation, the Partners will correct the
record ownership of the property to reflect the beneficial ownership of the two properties as
distributed to them upon the liquidation. After the liquidation and correction of record ownership,
Jonathan will become sole record and beneficial owner of Property A and David will become sole
record and beneficial owner of Property B.
In accordance with Section 1402 of the Tax Law, a transfer tax is imposed on each
conveyance of real property or interest therein at the time that the instrument effecting the
conveyance is delivered by a grantor to a grantee when the consideration for the conveyance exceeds
five hundred dollars.
Section 1401(e) of the Tax Law provides, in pertinent part, that the term "conveyance" means
the transfer or transfers or any interest in real property be any method. This would include a
conveyance upon liquidation or a conveyance by partition.
Section 1405 of the Tax Law provides, in part, as follows:
Sec. 1405. Exemptions.-- (a) The following shall be exempt from payment
of the real estate transfer tax:
*

*

*

6. Conveyances to effectuate a mere change of identity or form of ownership
   or organization where there is no change in beneficial ownership, other than
   conveyances to a cooperative housing corporation of the real property comprising the
   cooperative dwelling or dwellings;
   Pursuant to Sections 1441 and 1443.1 of the Tax Law and Section 590.1 of the Gains Tax
   Regulations the gains tax is a ten percent tax on the gain derived from the transfer of real property,
   which includes the acquisition or transfer 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.
   Section 1440.7 of the Tax Law defines the term "transfer of real property", in part, to mean
   the transfer or transfers of any interest in real by any method. This would include a transfer upon
   liquidation or a transfer by partition.
   Section 1443 of the Tax Law provides, in pertinent part, as follows:
   Sec. 1443. Exemptions.-- A total or partial exemption shall be allowed in
   the following cases:
   *

*

*

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5. If a transfer of real property, however effected, consists of a mere change
   of identity or form of ownership or organization, where there is no change in
   beneficial interest.
   In 115 Spring Street Company, Adv Op Comm T&F March 30, 1994, TSB-A-94(3)R, the
   Commissioner held that where each Partner pursuant to the Partnership Agreement held a beneficial
   interest solely in the unit he occupied and had no interest in the other Partners' units, that it was
   recognized that the beneficial ownership of each unit vested with each individual Partner without
   regard to ownership of the Property being held by Petitioner. Thus, the transfer of the shares
   allocated to the units from the cooperative housing corporation to each Partner whereby each Partner
   received shares allocated to the unit he occupied constituted a mere change of identity or form of
   ownership or organization since there was no change in the beneficial ownership of each unit.
   Pursuant to the Partnership Agreement, prior to the liquidation of Petitioner, Jonathan
   Heinrich is recognized as the sole beneficial owner of Property A and David Heinrich is recognized
   as the sole beneficial owner of Property B. Moreover, following the liquidation of Petitioner
   Jonathan and David Heinrich will retain the same beneficial ownership interest's they held in
   Properties A and B prior to the liquidation. Therefore, for purposes of the transfer tax, pursuant to
   the rationale set forth in 115 Spring Street Company, supra, the liquidation of the Petitioner will not
   effectuate a change in the beneficial ownership interest as held by both Jonathan and David Heinrich
   prior to the liquidation. Accordingly, pursuant to Section 1405(a)(6) of the Tax Law the liquidation
   of Petitioner and the correction of title to reflect the beneficial ownership distributed upon the
   liquidation of Petitioner in the two properties to Jonathan and David Heinrich individually will
   constitute a mere change of identity or form of ownership or organization since there will be no
   change in the beneficial ownership of each property and, thus, such conveyances will not be subject
   to the transfer tax.
   In addition, since the liquidation of the Petitioner will not effectuate a change in the
   beneficial ownership interest as held by both Jonathan and David Heinrich prior to the liquidation
   pursuant to Section 1443.5 of the Tax Law and 115 Spring Street Company, supra, the liquidation
   of Petitioner and the correction of title to reflect the beneficial ownership distributed upon the
   liquidation of Petitioner in the two properties to Jonathan and David Heinrich

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individually will constitute a mere change of identity or form of ownership or organization since
there will be no change in the beneficial ownership of each property and, thus, such transfers will
not be subject to the gains tax.

DATED: April 19, 1994

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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