Our company owns land under a Manhattan building. We're proposing to exchange it for seven other Manhattan properties owned by a related partnership, Eastern Pork Products Co. Both our company and Eastern Pork are ultimately owned (through different family trusts) by the same thirteen family members ('the Second Generation Children'), but the trusts and ownership percentages aren't identical -- our company is 100% owned by them equally through one set of trusts, while Eastern Pork is 99.9% owned by them equally through a different set of trusts, plus a small sliver owned by a corporation that only four of the thirteen family members own. Since the same family effectively owns both sides before and after this exchange, is it exempt from the Real Estate Transfer Tax and Real Property Transfer Gains Tax as a 'mere change of form,' or does the slight difference in cross-ownership percentages make part of it taxable?

Plain-English summary

1133 Building Corporation, a wholly-owned subsidiary of The Durst Buildings Corporation ("DBC"), owned the land under 114 West 47th Street in Manhattan. It proposed exchanging that land for seven Manhattan properties (on West 43rd Street, West 44th Street, and Ninth Avenue) owned by Eastern Pork Products Co. ("Eastern Pork"), a related New York general partnership. This was a companion transaction to a mirror-image ruling requested by Eastern Pork itself, TSB-A-95(11)R.

Tracing beneficial ownership through two different family trust structures. New York's mere-change-of-form exemption requires figuring out whether beneficial ownership actually changed as a result of a transfer -- which meant tracing through both entities' ownership chains. DBC's common stock (and through it, 1133 Corp.'s land) was owned in equal shares by thirteen family trusts dated May 1, 1962 (the "May Trusts"), for the benefit of thirteen individuals (the "Second Generation Children") -- giving each of them approximately 7.6923% beneficial interest in the land before the exchange. Eastern Pork's properties, meanwhile, were 99.9% owned in equal shares by a different set of thirteen family trusts dated December 31, 1962 (the "December Trusts") for the same thirteen individuals -- giving each about 7.6846% beneficial interest through that path -- with the remaining 0.1% of Eastern Pork owned by "EPP Corp.," a corporation whose stock was held equally by only four of the thirteen Second Generation Children. Under gains-tax regulations, entity ownership tracing for real property purposes only counts voting stock, and EPP Corp.'s 0.1% partnership stake translated to those four family members picking up an additional 0.25% beneficial interest in Eastern Pork's real property (through their ownership of the corporation).

The math. After the exchange, all thirteen Second Generation Children would hold their beneficial interest in the land (formerly 1133 Corp.'s) through their ownership of Eastern Pork instead. The nine family members with no EPP Corp. stake would see their beneficial interest in the land shift from about 7.6923% (via 1133 Corp.) to about 7.6846% (via Eastern Pork's 99.9% December Trust ownership) -- a net decrease. The four family members with an EPP Corp. stake would see theirs rise to about 7.7096% (their 7.6846% December Trust share plus their EPP Corp.-derived share) -- a net increase. Netting these shifts across all thirteen family members, the Department calculated that the exchange resulted in exactly a 0.069% real change in beneficial ownership of the land -- with the remaining 99.931% representing family members whose beneficial share stayed effectively unchanged, just routed through a different entity.

The result. Because New York's mere-change-of-form exemption (available under both the transfer tax and, before its 1996 repeal, the gains tax) applies "to the extent" beneficial ownership doesn't change, the Department held the exchange was exempt as to 99.931% of the property -- reflecting the portion of beneficial ownership that stayed with the same family members in the same proportions -- while the remaining 0.069%, representing the real (if tiny) net shift caused by EPP Corp.'s disproportionate stake, was subject to both the transfer tax and the gains tax.

What this means for you

Family-owned or closely-held businesses restructuring real estate among related entities

The mere-change-of-form exemption isn't all-or-nothing -- New York applies it proportionally, exempting only the fraction of a transfer where beneficial ownership truly stays the same and taxing the rest. If your related entities have even slightly different ownership structures (different trusts, different minority stakeholders), expect the Department to trace through the cap table on both sides and calculate a precise percentage, not just eyeball "same family, so exempt."

Estate planners and family office advisors structuring multi-generational trust holdings

Small structural differences between parallel trust vehicles -- like a minority corporate co-owner (here, EPP Corp.) held by only some family members rather than all of them -- can create a real, calculable shift in beneficial ownership even when the "same family" owns both sides of a transaction. Precise, contemporaneous ownership-percentage documentation on both sides of an exchange is essential to support a partial-exemption position like this one.

Accountants and tax professionals modeling entity-to-entity real estate exchanges

Watch for the voting-stock-only rule when tracing corporate ownership layers (20 NYCRR 590.45(a)) -- non-voting preferred stock, as DBC had here, doesn't count toward the beneficial-ownership tracing, only common/voting stock and comparable partnership interests do.

Common questions

Q: If the same family owns both sides of a property exchange, is the whole transaction automatically exempt from transfer tax?
A: Not necessarily. New York applies the mere-change-of-form exemption proportionally based on actual beneficial ownership percentages. If the two entities' ownership structures aren't perfectly identical, only the portion where beneficial ownership truly didn't change is exempt -- the rest is taxable.

Q: How precise does the ownership-percentage calculation need to be?
A: Very precise -- this ruling worked out beneficial ownership to hundredths of a percent (7.6923% vs. 7.6846% vs. 7.7096%) to identify a net 0.069% shift, which then determined exactly how much of the property's consideration was taxable.

Q: Does a small minority co-owner (like a corporation held by only some family members) automatically disqualify the whole transaction from the mere-change exemption?
A: No -- it just means the exemption applies proportionally rather than completely. The taxable portion is limited to the actual calculated shift in beneficial ownership, not the entire transaction.

Q: Where can I see the other side of this exchange?
A: The companion transaction, where Eastern Pork Products Company transferred its properties to 1133 Building Corporation in exchange for the land, was addressed in a separate advisory opinion issued the same day, TSB-A-95(11)R.

Citations and references

Statutes and regulations:

• Section 1401(e) of the Tax Law (definition of "conveyance" -- includes a conveyance by exchange)
• 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, applies "to the extent" of unchanged beneficial ownership)
• Section 1440.7 of the Tax Law (gains tax definition of "transfer of real property" -- includes a transfer by exchange)
• Section 1441 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)
• 20 NYCRR 590.45(a) (gains tax "controlling interest" tracing test -- looks only to voting stock)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a95_10r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (10) - R
Real Property Transfer Tax
Real Property Transfer
Gains Tax
October 3,1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M950606A

On June 6, 1995, a Petition for Advisory Opinion was received from 1133 Building
Corporation, c/o The Durst Organization, Inc., 1133 Avenue of the Americas, New York, NY 10036.
The issue raised by Petitioner, 1133 Building Corporation, Inc., is whether the transfer by
Petitioner of certain real property in exchange for real property held by Eastern Pork Products Co.
(hereinafter "Eastern Pork") will be exempt from the Real Estate Transfer Tax (the "transfer tax")
and the Real Property Transfer Gains Tax (the "gain tax") as a mere change of identity or form of
ownership or organization to the extent of the 99.93Z common ownership interest.
The land under 114 West 47th Street, New York City (the "Land") is currently owned by
Petitioner, a wholly-owned subsidiary of The Durst Buildings Corporation ("DBC"). DBC has
outstanding three classes of common stock, each class of which is owned, in equal proportions, by
thirteen family trusts dated May 1, 1962, (the "May Trusts") for the benefit of thirteen individuals
(the "Second Generation Children"). DBC also has outstanding three classes of non-voting preferred
stock, more than 50% in value of which is owned by the Second Generation Children, with the
remainder owned by related individuals and a private foundation.
Eastern Pork is a New York general partnership which owns land and buildings in New York
City. 99.9% of the partnership interests in Eastern Pork are owned, in equal proportions, by thirteen
family trusts dated December 31, 1962 (the "December Trusts") for the benefit of the Second
Generation Children. EPP Corp., a corporation which is owned by four of the Second Generation
Children, owns the remaining 0.1% interest in Eastern Pork.
Pursuant to a proposed transaction (the "Exchange") Petitioner will transfer its interest in the
Land to Eastern Pork in exchange for the following properties (the "EPP Properties"):
352-364 West 43rd Street
New York, New York
407-9 43rd Street
New York, New York
142-44 West 44th Street
New York, New York

-2TSB-A-95 (10) - R
Real Property Transfer Tax
Real Property Transfer
Gains Tax
October 3,1995
447-9 West 43rd Street
New York, New York
425 West 43rd Street
New York, New York
415 West 43rd Street
New York, New York
584-6 9th Avenue
New York, New York
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 of any interest in real property by any method. This would include a
conveyance of real property by exchange.
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;
   Moreover, the gains tax is a 10% tax on the transfer of an interest in real property where the
   property is located in New York State and where the consideration received for the transfer is $1
   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 property by any method. This would include a transfer
   of real property by exchange.
   Section 1443 of the Tax Law provides, in part, as follows:
   Sec. 1443. Exemptions.-- A total or partial exemption shall be allowed in the
   following cases:

-3TSB-A-95 (10) - R
Real Property Transfer Tax
Real Property Transfer
Gains Tax
October 3,1995
*

*

*

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.
   To determine whether the Exchange results in a transfer subject to the transfer tax and/or the
   gains tax, it is necessary to ascertain who the beneficial owners of the Land and the EPP Properties
   are both before and after the Exchange. Petitioner is wholly owned by DBC. All of the common
   stock of DBC is owned, in equal proportions, by the May Trusts, the beneficial owners of which are
   the Second Generation Children. Therefore, each of the Second Generation Children is deemed to
   have approximately a 7.6923% beneficial interest in the real property owned by Petitioner before the
   Exchange. Similarly, 99.9% of Eastern Pork is owned, in equal proportions, by the December Trusts,
   the beneficial owners of which are also the Second Generation Children. Thus, through this 99.9%
   ownership interest, each of the Second Generation Children is deemed to have approximately a
   7.6846% beneficial interest in the real property owned by Eastern Pork before the Exchange (99.9%
   multiplied by 1/13). In addition, 0.1% of Eastern Pork is owned by EPP Corp. The stock of EPP
   Corp. is owned, in equal proportions, by four of the Second Generation Children. In entity transfers,
   pursuant to Section 590.45(a) of the Gains Tax Regulations, the statute only looks to the voting stock
   of the corporation in determining whether a transfer of an interest of real property has occurred. The
   definition of the term "controlling interest" provides, in part, that a controlling interest is
   representative of owning fifty percent or more of the total combined voting power of all classes of
   stock of such corporation. Accordingly, through their ownership interest in EPP Corp., four of the
   thirteen Second Generation Children are deemed to have an additional 0.25% beneficial interest in
   the real property owned by Eastern Pork prior to the Exchange.
   Therefore, as a result of the Exchange, nine of the thirteen Second Generation Children will
   retain approximately a 7.6846% beneficial ownership interest in the real property formally owned
   by Petitioner through their ownership interest in Eastern Pork. Moreover, four of the thirteen Second
   Generation Children will be deemed to have a 7.7096% beneficial ownership interest in the real
   property formally owned by Petitioner through their ownership interest in Eastern Pork and EPP
   Corp. Thus, nine of the thirteen Second Generation Children, in the aggregate, will be deemed to
   have transferred a .069% beneficial ownership in the real property formally owned by Petitioner
   (7.6923% minus 7.6846% multiplied by 9). Also, four of the thirteen Second Generation Children
   will be deemed to have acquired, in the aggregate, approximately an additional .069% interest in the
   real property formally owned by Petitioner through their ownership interest in EPP Corp. which
   owns a .1% interest in Eastern Pork (7.7096% minus 7.6923% multiplied by 4).
   Accordingly, the Exchange results in a .069% change in the beneficial ownership in the Land
   formally owned by Petitioner. Thus, the resultant conveyance and transfer of real property for
   purposes of the transfer tax and gains tax constitutes a conveyance and transfer which results in a
   mere change of identity or form of ownership or organization to the extent of 99.931% and the
   respective exemptions provided in Sections 1406.6 and 1443.5 of the Tax Law would apply to such

-4TSB-A-95 (10) - R
Real Property Transfer Tax
Real Property Transfer
Gains Tax
October 3,1995
extent. Conversely, such conveyance and transfer would be subject to the transfer tax and the gains
tax to the extent of the deemed change in beneficial interest in the Land of .069%.

DATED: October 3, 1995

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

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