We're the fee owner of an office building. To help a corporate tenant get economic-development tax benefits through the NYC Industrial Development Agency (IDA), we're converting our building to a condominium and conveying legal title to the tenant's units to the IDA for a nominal price, then leasing those units back from the IDA for nominal rent under an 'Overlease.' We (not the IDA) will keep all the rent, insurance and condemnation proceeds, income-tax ownership treatment, and the right to sell, mortgage, or alter the units; title reverts to us automatically when the IDA benefits end (no later than 2016). The tenant separately subleases from us and its rent obligations flow through additional financing leases to fund the IDA bonds. Are the conveyance to the IDA, the eventual reversion back to us, and the various leases and lease amendments subject to New York's Real Estate Transfer Tax or the (now-repealed) Real Property Transfer Gains Tax?

Plain-English summary

Metropolitan Life Insurance Company, the fee owner of the office building at 11 Madison Avenue in Manhattan, asked the Department about the transfer-tax consequences of a multi-step transaction designed to let a tenant, CS First Boston Corporation ("the Company"), receive economic-development benefits from the New York City Industrial Development Agency (the "IDA").

The structure. Because IDA benefits require the IDA to hold a legal ownership interest in the benefited property, Metropolitan Life converted the building to a condominium and conveyed title to the units the Company would occupy ("the IDA Units") to the IDA for a nominal amount. Title would automatically revert to Metropolitan Life on the earlier of December 31, 2016, or whenever the Company's IDA benefits or related financing leases terminated. Simultaneously, the IDA leased the IDA Units back to Metropolitan Life for nominal rent under an "Overlease" running for the same term as the IDA's title. Although the IDA held record title, both the Overlease and the parties' actual intent treated Metropolitan Life as the beneficial owner throughout: Metropolitan Life bore all benefits and burdens of ownership, the IDA had no maintenance or repair obligations, Metropolitan Life (and the Company) indemnified the IDA against liability, condemnation and insurance proceeds belonged solely to Metropolitan Life, Metropolitan Life could sell, transfer, or mortgage the units (with the IDA barred from disposing of its title without Metropolitan Life's written consent), and the condominium's own governing documents deemed Metropolitan Life the "Unit Owner" for as long as the Overlease was in effect.

The financing layer. Separately, Metropolitan Life leased the same space to the Company under a "Prime Lease" (up to 20 years, with renewal options up to 15 more). To help finance the Company's leasehold improvements with tax-exempt IDA bonds, the Company sub-subleased its interest to the IDA (the "Facility Lease" for nominal rent), and the IDA in turn leased the premises onward to designated financing agents within the Company's corporate group (the "Financing Lease"), whose rent matched the bonds' principal and interest. Once a unit became exempt from NYC real property tax under the IDA arrangement, the Company would make "payments in lieu of taxes" (Pilots) instead of ordinary rent taxes -- capped at the lesser of a scheduled amount or what property taxes would otherwise have been. None of these layered leases displaced Metropolitan Life as beneficial owner of the underlying real estate.

Why everything was exempt. The Real Estate Transfer Tax (Tax Law Section 1402) applies to conveyances of real property for consideration over $500, and the (now-repealed) Real Property Transfer Gains Tax applied to transfers with $1 million or more in consideration. Transfer tax regulations at 20 NYCRR 575.11 specifically address IDA transactions: a conveyance to an IDA by the actual beneficiary of the financing, in connection with receiving that financing, is not subject to tax, and neither is the IDA's later conveyance back to that same beneficiary. The Department found that although Metropolitan Life was not itself the "beneficiary" of the IDA financing (the Company was), Metropolitan Life retained all the benefits and burdens of ownership of the IDA Units throughout -- the same analysis the Department had already applied in three prior rulings involving similar condo-to-IDA transfers (The Chase Manhattan Bank, N.A., TSB-A-93(1.1)R; Resnick Water St. Development Co., TSB-A-93(2)R; and Stanley Stahl, TSB-A-95(5)-R). Because beneficial ownership never left Metropolitan Life, none of the three transactions at issue -- (1) the initial conveyance to the IDA, (2) the eventual reversion back to Metropolitan Life, and (3) the creation/termination of the Overlease, the Prime Lease, or additions/deletions of units under either -- were subject to the transfer tax or the gains tax (the latter only relevant for pre-June 15, 1996 transactions, since it was repealed thereafter).

What this means for you

Property owners facilitating a tenant's IDA economic-development benefits

Conveying legal title to an IDA to help a tenant secure IDA tax benefits doesn't trigger transfer tax on the conveyance, the leaseback, or the eventual reversion -- as long as you (the owner) retain every real economic incident of ownership: rent, condemnation/insurance proceeds, income-tax ownership treatment, the right to sell or mortgage, and an automatic reverter when the arrangement ends. The IDA's record title is treated as a formality, not a real transfer of beneficial ownership.

IDA transaction structuring (developers, bond counsel, financing agents)

This ruling extends the "grantor retains all benefits and burdens" analysis beyond the simple beneficiary-to-IDA-and-back pattern to a more layered structure involving a non-beneficiary fee owner, a separate Prime Lease with the actual corporate beneficiary, and further sub-subleases (Facility Lease, Financing Lease) used to channel bond financing. Each layer stayed exempt because none of them shifted real economic ownership away from the underlying property owner.

Accountants and tax professionals tracking the repealed Real Property Transfer Gains Tax

The gains tax was repealed for transfers occurring on or after June 15, 1996. If you're reviewing an older multi-step IDA transaction that straddles that date, check which specific steps closed before versus after June 15, 1996 -- only the earlier steps could have gains-tax exposure at all.

Common questions

Q: If I convey my building's title to an IDA to help my tenant get tax benefits, do I owe Real Estate Transfer Tax on that conveyance?
A: Not if you retain all the real benefits and burdens of ownership -- rent, condemnation and insurance proceeds, income-tax ownership treatment, and the right to sell or mortgage the property -- even though the IDA holds legal title. The Department treats that as no change in beneficial ownership.

Q: What happens when the IDA later reconveys title back to me?
A: If you remained the beneficial owner the whole time (as in this ruling), the reversion or reconveyance likewise isn't a taxable conveyance, because there's still no change in beneficial ownership.

Q: Does it matter that I wasn't the actual beneficiary of the IDA's tax benefits -- my tenant was?
A: Not on these facts. The regulations' clean exemption technically covers conveyances by the beneficiary itself, but the Department applied the same beneficial-ownership-retention analysis to this owner/non-beneficiary situation because the owner, not the IDA, kept all the economics.

Q: Is the Real Property Transfer Gains Tax discussed in this ruling still a live concern today?
A: No -- it was repealed for transfers occurring on or after June 15, 1996 and no longer applies to new transactions.

Citations and references

Statutes, regulations, and prior opinions:

• Section 1402 of the Tax Law (RETT on conveyances over $500 consideration)
• 20 NYCRR 575.7 (long-term lease/substantial improvement/90%-of-premises test for a taxable conveyance)
• 20 NYCRR 575.9(c)(1) (exemption for conveyances to governmental entities)
• 20 NYCRR 575.11(a)(13)-(14), (b)(1)-(2) (IDA conveyance examples -- taxable vs. exempt)
• 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)
• 20 NYCRR 590.5(a)-(b) (long-term lease/purchase-option as a taxable gains-tax transfer)
• 20 NYCRR 590.68(a) (IDA financing conveyance/leaseback not a taxable gains-tax event until transfer to a non-IDA party)
• The Chase Manhattan Bank, N.A., Adv Op Comm T&F, February 8, 1993, TSB-A-93(1.1)R
• Resnick Water St. Development Co., Adv Op Comm T&F, January 12, 1993, TSB-A-93(2)R
• Stanley Stahl, Adv Op Comm T&F, June 26, 1995, TSB-A-95(5)-R

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a96_12r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (12) R
Real Estate
Transfer Tax
Gains Tax
September 18, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M960426A

On April 25, 1996 the Department of Taxation and Finance received a Petition for Advisory
Opinion from Metropolitan Life Insurance Company, 1 Madison Avenue, New York, New York
10010.
The issues raised by Petitioner, Metropolitan Life Insurance Company, are:
1.
Whether the conveyance and transfer of certain condominium units by Petitioner to
the New York City Industrial Development Agency (the "IDA") are subject to the Real Estate
Transfer Tax imposed by Article 31 of the Tax Law (the "transfer tax") and the Real Property
Transfer Gains Tax formerly imposed by Article 31-B of the Tax Law (the "gains tax").
2.
Whether the reversion or reconveyance of the same condominium units by the IDA
to the Petitioner are subject to the transfer tax and the gains tax.
3.
Whether the creation or termination of the Overlease, creation of the Prime Lease
or the addition or deletion of the additional Units in the IDA Units under either the Overlease
or the Prime Lease is subject to the transfer tax and the gains tax.
Petitioner submits the following facts as the basis for this Advisory opinion.
Petitioner is currently the fee owner of the premises known as 11 Madison Avenue (the
"Building"), in the Borough of Manhattan, block #854, lot #1. Petitioner has been advised that,
pursuant to a resolution adopted by the IDA, certain economic development benefits were authorized
in order to induce CS First Boston Corporation (the "Company") to retain its offices in New York
City (the "City"). The IDA has agreed to participate in the transaction described herein and to confer
tax benefits upon the Company and certain of its affiliates (the "Company Group") in order to reduce
the Company's costs of operating and maintaining its City offices and in order to help finance the
Company Group's cost of acquiring equipment and leasehold improvements (the "IDA Benefits").
The Company has entered into various agreements with the IDA in order to facilitate these
transactions.
In order to secure certain IDA Benefits the IDA must have a legal ownership interest in the
property benefitted. Accordingly, as an accommodation to the Company, the Building has been
converted into a condominium and Petitioner has conveyed title to those units representing the
portion of the Building that the Company will occupy (the "IDA Units") to the IDA for a nominal
amount. Title to the IDA Units will automatically revert back to Petitioner on the earlier of

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December 31, 2016, or when the benefits being afforded to the Company, or any of the related
financing leases or subleases entered into among the Company Group, and the IDA, terminate.
Simultaneously with the conveyance by Petitioner of the IDA Units to the IDA, the IDA
leased the IDA Units back to Petitioner for a nominal rent pursuant to a lease agreement between the
IDA and Petitioner (the "Overlease"). The term of the Overlease will be coextensive with the term
of the IDA's title to the IDA Units.
While the IDA holds record title to the IDA Units, the Overlease contemplates, and the
parties to the transaction intend, that Petitioner is the beneficial owner of the IDA Units. Under the
terms of the conveyance and the Overlease, Petitioner is entitled to all of the benefits and bears all
of the burdens of ownership of the IDA Units. Under the Overlease, the IDA has no obligation to
improve, replace, service, adjust, repair, or maintain any portion of the IDA Units. Moreover,
Petitioner and the Company agreed (pursuant to and in accordance with separate agreements with
the IDA) to indemnify the IDA and its directors, officers and employees for liabilities arising from
the operation of the IDA Units. Petitioner, as the beneficial owner of the IDA Units, will have the
right in its own name to initiate contests regarding legal requirements applicable to the IDA Units.
The IDA has no beneficial interest in the IDA Units. The Overlease provides that the IDA
will have no interest in any condemnation awards with respect to the IDA Units or any proceeds
from insurance maintained by Petitioner or the Company; as between the IDA and Petitioner all
condemnation awards or insurance proceeds will be the sole property of Petitioner.
Petitioner has the right to sell or otherwise transfer the IDA Units. Petitioner may assign or
transfer its interest in the Overlease, subject to then existing tenancies and subtenancies, provided
that (1) Petitioner transfers all its interests in the IDA Units including any reversionary interests; (2)
notice is given to the IDA of the assignment and transfer and the identity of the transferee or
assignee; and (3) the assignee or transferee certifies that it is not among the groups proscribed from
entering into transactions with the IDA. Petitioner may also mortgage its interest in the IDA Units
and the Overlease. The Overlease contemplates that at Petitioner's request the IDA will subject its
title to the IDA Units to any such mortgage, subject to certain restrictions. The IDA will not have
the right to sell, assign, convey, lease, mortgage, or otherwise transfer or encumber its title to the
IDA Units without Petitioner's prior written consent. Any attempt by the IDA to dispose of the IDA
Units without Petitioner's prior written consent will be void.
In the Declaration of Condominium filed in connection with the conversion of the Building
to a condominium form of ownership, "Unit Owner" is defined as the person or persons owning the
fee simple interest in any Unit and the common interest appurtenant thereto, except that for any
period during which record title to any unit is held by the IDA and leased by it to the Petitioner
pursuant to the Overlease the owner of such unit is for all purposes deemed to be the Petitioner.

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Therefore, Petitioner will be the "owner" of the IDA Units for all purposes of the Condominium's
by-laws. Petitioner also has the right to make any alterations, additions, installations improvements
and substitutions to the IDA Units, provided that the same are made in compliance with law.
Petitioner has leased the premises that will comprise the IDA Units to the Company pursuant
to a lease agreement dated as of July 28, 1995 (the "Prime Lease"). Pursuant to the Prime Lease,
Petitioner has granted the Company the right to lease additional space in the Building. (All space
leased from time to time by Petitioner to the Company under the Prime Lease is referred to as the
"Project Premises".) Under the Prime Lease, Petitioner has granted the Company the right to use and
occupy the Project Premises for a period that for certain space at the Project Premises is up to twenty
years. The Company has three renewal options under which the Company can add up to fifteen years
to the lease term with respect to certain space at the Project Premises. The exercise of these renewal
options will not prolong the IDA's legal title to the IDA Units. The Overlease states that the IDA is
deemed not to have assumed, or be responsible for, any obligations of the Company under the Prime
Lease.
The Prime Lease defines "rent" as including fixed rent and additional rent. Fixed rent is an
amount specified in the Prime Lease. Petitioner has been advised by its financial advisors that the
fixed rent represents the fair market rental value of the Project Premises. During a renewal term,
fixed rent will be either set by agreement between Petitioner and the Company or based on the results
of an appraisal process provided for in the Prime Lease. Additional rent generally includes operating
expenses and taxes, including real estate taxes and special additional rent. The failure of the
Company to pay fixed or additional rent constitutes an event of default under the Prime Lease.
From and thereafter the applicable rent commencement date specified in the Prime Lease and
until such time that a condominium unit subject to the Prime Lease becomes an IDA Unit and
becomes exempt from the New York City Real Property Tax under Section 874 of the New York
General Municipal Law and Section 412-a of the New York Real Property Tax Law, the Company
will pay the real estate taxes attributable to that unit. Thereafter, as is customary in such
arrangements, the Company will make payments in lieu of real estate taxes ("Pilots") under a
separate agreement with the IDA (the "Pilot Agreement"). Petitioner has been advised by the
Company that the amount of each Pilot will be equal to the lesser of (i) scheduled amounts agreed
to between the IDA and the Company, or (ii) the amount of real estate taxes that would have been
payable on the IDA Units were they not exempt from those taxes. Petitioner has been further advised
by the Company that the Company must make Pilots to a trustee (the "Pilot Trustee") by the date
when property taxes must be paid to the City. The Company's obligation under the Pilot Agreement
to make Pilots will be secured by a form of security acceptable to the IDA. The Company's payment
of Pilots to the Pilot Trustee is not fixed or additional rent under the Prime Lease, and the Company's

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failure to make these payments is not an event of default, nor does it otherwise affect the Company's
right to use or occupy the Project Premises, under the Prime Lease.
Petitioner has been advised that the IDA will provide certain financial benefits to the
Company Group. In order to provide these benefits, Petitioner has been informed that it is necessary
for the IDA to acquire a leasehold interest in the Project Premises. Accordingly, the Company has
sub-subleased the Company's leasehold interest in the Project Premises to the IDA for a nominal rent
(the "Facility Lease"). The IDA, in turn, sub-sub-subleased the Project Premises, together with
improvements thereto and certain equipment, to designated agents with the Company Group (the
"Financing Lease"). (Designated agents within the Company Group must be used for sales tax
reasons; those designated agents are referred to herein as "Group Agents".) The Facility Lease and
the Financing Lease will terminate approximately four months before the expiration of the initial
term of the Prime Lease. The cost of certain improvements and equipment to be installed by the
Company in the Project Premises will be financed by Bonds issued by the IDA. The amount of rent
that the Company Group will pay under the Financing Lease will equal the amount of interest on,
and principal of, the Bonds.
Petitioner has been advised that the Company has generally agreed to indemnify the IDA, the
Trustee, and other parties for liabilities arising out of the Financing Lease and related agreements
and to pay the Trustee's expenses to the extent that they are not paid out of the proceeds of the
Bonds. The Company must pay operating costs and maintain, repair, and insure the Project Premises
at its own expense, subject to the terms of the Financing Lease. If the Project Premises are destroyed
or condemned, the Company need not replace them but the Group Agents must continue to pay rent
under the Financing Lease.
The Group Agents can terminate the Financing Lease early by paying an amount sufficient
to retire all outstanding Bonds. In that event, the Facility Lease, the Pilot Agreement, and the
Overlease will also terminate and formal legal title to the IDA Units will automatically revert to
Petitioner.
Neither the Facility Lease, the Financing Lease, the Overlease, nor the conveyance of the IDA
Units to the IDA will affect the Company's obligations to Petitioner pursuant to and in accordance
with the Prime Lease and each of the Facility Lease and the Financing Lease are subject and
subordinate to the Overlease.
Petitioner represents that for financial reporting and federal, state, and local income tax
purposes, it will be the owner of the IDA Units for as long as it holds a leasehold position under the
Overlease and a reversionary interest in the Units.

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Gains Tax
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All transactions described herein, except for the reversion of the condominium units by the
IDA to the Petitioner and the termination of the Overlease, occurred prior to June 15, 1996.
Section 1402 of the Tax Law imposes the transfer tax 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.
Part 575 of 20 NYCRR (the transfer tax regulations) at Section 575.7 provides that the
creation of a lease or sublease not coupled with an option to purchase constitutes a conveyance of
an interest in real property only where:
(1) the sum of the term of the lease or sublease and any options for renewal exceeds
49 years; and
(2) substantial capital improvements are or may be made by or for the benefit of the
leasee or sublessee; and
(3) the lease or sublease is for substantially all of the premises constituting the real
property. Substantially all means ninety percent or more of the total rentable space
of the premises, exclusive of common areas ....
Also, Section 575.9(c) of the transfer tax regulations, provides in part as follows:
(c) In addition to the exemptions described in subdivision (b) of this section, certain
transactions are not subject to the real estate transfer tax. These include:
(1) conveyances to any of the governmental organizations or entities described in
subdivision (b) of this section, including any instrumentality or agency of the United
Nations; ....
Also, Section 575.11 of the transfer tax regulations provides, in part, as follows:
(a) The following are examples of conveyances which are subject to real estate
transfer tax ....
(13) A conveyance of real property to an industrial development agency (IDA) by
a person who is not the beneficiary of the IDA financing, at the direction of such
beneficiary, with such beneficiary subsequently leasing the property from the IDA,
is subject to tax. In such a conveyance, the beneficiary of the IDA financing and not
the IDA is deemed to be the grantee, and therefore the exemption described at section
575.9(c)(1) of this Part does not apply.

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Gains Tax
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(14) A conveyance of real property by an IDA to a person who is not the beneficiary
of the IDA financing where such conveyance is made at the direction of such
beneficiary is subject to tax. In such a conveyance, the beneficiary of the IDA
financing is deemed to be the grantor of the conveyance ....
(b) The following are examples of conveyances which are not subject to the real
estate transfer tax.
(1) A conveyance of real property by the beneficiary of the industrial development
agency (IDA) financing to the IDA, in connection with the receipt of such financing
is not subject to tax.
(2) A conveyance of real property by the IDA, as grantor, to the beneficiary of the
IDA financing, as grantee is not subject to tax.
Section 1441 of the Tax Law imposed the gains tax on the gain derived from the transfer of
real property or an interest therein, where the real property or interest therein is located in New York
State and where the consideration is $1 million or more.
Chapter 309 of the Laws of 1996 repealed the gains tax for transfers of real property that
occurred or occur on or after June 15, 1996.
Section 590.5(a) of the gains tax regulations provides that the creation of a lease or sublease
is a transfer of an interest in real property, but only where:
(1) the sum of the term of the lease or sublease and any options for renewal exceeds
49 years;
(2) substantial capital improvements are or may be made by or for the benefit of the
lessee or sublessee; and
(3) the lease or sublease is for substantially all of the premises constituting the real
property. Substantially all is defined to mean 90 percent or more of the total rentable
space of the premises, exclusive of common areas ....
Section 590.5(b) of the gains tax regulations sets forth that when the creation of a leasehold
is coupled with the granting of an option to purchase the property, the transfer is taxable regardless
of the term of the lease.
Section 590.68(a) of the gains tax regulations provides that when the company (the
beneficiary of an industrial revenue bond financing) transfers fee title to the real property to the IDA
solely for the purpose of receiving tax-exempt financing, and simultaneously leases such property
back, upon which the company will construct an improvement, the company will be considered the
owner of the project and there will not be a taxable event for gains tax purposes until the company

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Gains Tax
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transfers an interest in the land or building to a party other than the IDA. This is also true for ground
leases/subleases or other similar transactions which are designed to facilitate industrial revenue bond
financings.
However, in a situation where the IDA obtains the real property directly from a third party
at the direction of the company and leases the property to the company, the transfer to the IDA will
be subject to the gains tax if the consideration for the transfer is $1 million or more.
The Chase Manhattan Bank. N.A., Adv Op Comm T&F, February 8, 1993, TSB-A-93(1.1)R, and Resnick Water St. Development Co., Adv Op Comm T&F, January 12, 1993, TSB-A-93(2)R, advised that while the petitioner was not the beneficiary of the IDA financing, the transfer of
certain condominium units to the New York City Industrial Development Agency (the "IDA Units")
would not result in a change in beneficial ownership since the petitioner retains all the benefits and
burdens of ownership of the IDA Units, and therefore, the transfer of title to such IDA Units to the
IDA would not be subject to the gains tax and the transfer tax. In addition, the opinions advised that
the reversion of fee title to the IDA Units to the petitioner would not result in a change in beneficial
interest and, therefore, would not be subject to the gains tax and the transfer tax. These opinions
further advised that the creation of certain leases and leasebacks between the IDA and the petitioner
and the petitioner and the bond financing recipient were not subject to the gains tax and the transfer
tax. Also, see Stanley Stahl, Adv Op Comm T&F, June 26, 1995, TSB-A-95(5)-R.
Regarding issue "1", in accordance with Section 575.11 of the transfer tax regulations and
Section 590.68(a) of the gains tax regulations, the conveyance and transfer of title to real property
to an IDA for the purpose of obtaining IDA financing, when the grantor/transferor remains the
beneficial owner of the property, are not subject to the transfer tax and the gains tax. Also, as set
forth in The Chase Manhattan Bank. N.A., supra, Resnick Water St. Development Co., supra, and
Stanley Stahl, supra, the conveyances and transfers of certain condominium units to the New York
City Industrial Development Agency were deemed not to result in a change in beneficial ownership
since the petitioner retained all the benefits and burdens of ownership of the IDA Units. In this case,
while Petitioner is not the beneficiary of the IDA financing, the conveyance and transfer of the
condominium unit(s) to the IDA does not result in a change in beneficial ownership since the
Petitioner retains all the benefits and burdens of ownership of the IDA Unit(s). Accordingly, the
conveyance and transfer of title to the condominium unit(s) to the IDA are not subject to the transfer
tax and the gains tax.
With respect to issue "2", based on the provisions of Section 575.11 of the transfer tax
regulations, The Chase Manhattan Bank. N.A., supra., St. Development Co., supra, and Stanley
Stahl, supra, the reversion or reconveyance of an IDA unit(s) to Petitioner does not result in a change
in beneficial interest, since Petitioner remains the beneficial owner of the condominium unit(s) after

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the conveyance of fee title to the IDA. Therefore, the reversion or reconveyance of IDA unit(s) to
Petitioner will not be subject to transfer tax. Also, as the gains tax has been repealed for transfers of
real property that occur on or after June 15, 1996, the gains tax will not be an issue with respect to
such reversion or reconveyance.
Regarding issue "3", in accordance with Section 575.11 of the transfer tax regulations and
Section 590.68(a) of the gains tax regulations, the leaseback of real property by an IDA to the
beneficiary of the IDA financing is not subject to transfer tax and gains tax, since the beneficiary of
the IDA financing remains the beneficial owner of the real property. In this case, while Petitioner is
not the beneficiary of the IDA financing, Petitioner is the beneficial owner of the real property.
Therefore, the creation of the Overlease, whether in connection with the addition or deletion of
additional Units in the IDA Unit, is not subject to transfer tax and gains tax. The termination of the
Overlease is not subject to the transfer tax pursuant to Section 575.11 of the transfer tax regulations.
Since the gains tax has been repealed for transfers of real property that occur on or after June 15,
1996, the gains tax is not an issue with respect to the termination of the Overlease.
Also, based on the provisions of Section 575.7 of the transfer tax regulations and Section
590.5 of the gains tax regulations, the creation of the Prime Lease, in connection with the addition
or deletion of additional Units in the IDA Units for a term of less than 49 years, including renewal
periods, is not subject to transfer tax and gains tax.

DATED: September 18, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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