Six general partnerships, each owning or leasing a different New York City property (some fee, some leasehold), are all beneficially owned by the same six family members in identical 16.66% shares. Each partnership plans to transfer its real property interest to a brand-new, separate LLC in exchange for 100% of that LLC's shares, then distribute those LLC shares out to the same six family members in the same 16.66% shares they've always held. Is each of these six partnership-to-LLC transfers exempt from New York's Real Estate Transfer Tax?

Plain-English summary

Six related general partnerships -- 149 Realty Associates, Shelburne Murray Hill, Patrick Denihan et al d/b/a Denart Company, Plaza 50 Company, Chelsea Tower Company, and Lyden Hotel Co. -- jointly petitioned the Department because they all shared identical beneficial ownership and raised the identical issue, so the Department consolidated their petitions into this single Advisory Opinion. Each partnership held an interest (fee or leasehold) in a different New York City property: 500 West 37th Street, 303 Lexington Avenue, 222 East 39th Street, 155 East 50th Street, 371 Seventh Avenue, and 20 East 76th Street, respectively -- none of them cooperative housing dwellings. Each partnership was owned in equal 16.66% shares by the same six individuals: Daniel Denihan Jr., Benjamin Denihan Jr., Brooke Barrett, Maureen Ferrari, Donald Denihan, and Laurence Denihan, each sharing equally in profit, loss, capital, voting, and distribution rights.

Each partnership proposed to transfer its real property interest to a newly formed, separate limited liability company in exchange for 100% of that LLC's membership shares. Each partnership would continue to exist afterward. The LLC shares each partnership received would then be distributed out to the same six individual partners, so that each new LLC would end up owned by the identical six people in the identical 16.66% shares they'd always held in the original partnership.

Why it's exempt. The Department confirmed that each partnership-to-LLC transfer is, in the first instance, a taxable conveyance of real property under Tax Law §§1402 and 1401(e) (the definition of "conveyance" covers the transfer of any interest in real property by any method, and "interest in real property" under §1401(f) includes both fee and leasehold interests). But because the resulting LLC's ownership would be identical -- both in terms of who the owners are AND their exact percentage interests -- to the partnership's ownership immediately before the transfer, the Department held there is no change in beneficial ownership of any of the six properties. The transfers therefore qualify for the mere-change-of-form-of-ownership exemption under §1405(b)(6), and no real estate transfer tax is due on any of the six restructurings.

What this means for you

Converting a family-owned partnership's real estate holdings into an LLC structure is tax-free if ownership percentages carry over exactly

If you're restructuring how a group of co-owners holds real property -- moving from a general partnership to an LLC for liability-protection or governance reasons -- the transfer tax exemption is available as long as the same owners end up holding the same percentage interests in the new entity, with no dilution, addition, or removal of owners along the way.

Both fee and leasehold interests qualify for the same exemption

This ruling confirms the mere-change-of-form exemption isn't limited to outright fee ownership -- properties held under a leasehold interest (like Plaza 50 Company's and Lyden Hotel Co.'s properties here) get the same tax-free treatment when beneficial ownership doesn't change.

Multiple related entities can consolidate identical-issue petitions into one advisory opinion

If several commonly-owned entities are contemplating the same restructuring and raise the same legal question, the Department may consolidate their petitions, saving the cost and time of filing (and waiting on) separate advisory opinion requests -- worth considering if you're advising a family or investor group with several parallel holding entities.

Keep the underlying partnership alive if you want to preserve other planning goals

Notably, this structure has each original partnership continue to exist after the transfer (holding LLC shares rather than real estate directly) -- worth checking whether your own restructuring plan similarly preserves the transferring entity, or whether dissolving it introduces other tax or legal considerations outside the scope of this ruling.

Common questions

Q: If I convert my partnership's real estate holding into an LLC, but the same partners end up owning the same percentages of the new LLC, do I owe transfer tax?
A: No -- if beneficial ownership (who owns it and in what percentages) doesn't change, the conveyance to the new entity qualifies for the mere-change-of-form exemption.

Q: Does this exemption only apply to properties owned outright (fee), or also to leased properties?
A: It applies to both -- this ruling confirms leasehold interests get the same treatment as fee interests when beneficial ownership doesn't change.

Q: Can multiple commonly-owned entities with the same restructuring plan file one combined advisory opinion request?
A: Yes -- the Department consolidated six separate petitions here because they shared identical ownership and raised the identical legal issue.

Citations and references

Statutes, guidance, and case law:

• Section 1402 of the Tax Law
• Section 1401(e) of the Tax Law
• Section 1401(f) of the Tax Law
• Section 1405(b)(6) of the Tax Law

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1999.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a99_5r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-99(5)R
Real Estate Transfer Tax
September 17, 1999

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M990524B

On May 24, 1999, the Department of Taxation and Finance received Petitions for Advisory
Opinion from the following petitioners: 149 Realty Associates; Shelburne Murray Hill; Patrick
Denihan et al, d/b/a Denart Company; Plaza 50 Company; Chelsea Tower Company; and Lyden
Hotel Co. All of the petitioners have a mailing address of 500 West 37th Street, New York, NY
10018. Each of the Petitioners is a general partnership, the beneficial ownership of each Petitioner
is identical, and the issue being raised in each petition is also identical. Therefore, the petitions have
been consolidated and will be addressed jointly in this Advisory Opinion.
The issue raised by each Petitioner is whether the conveyance of an interest in a parcel of real
property from a general partnership to a limited liability company will be exempt from the Real
Estate Transfer Tax imposed pursuant to Article 31 of the Tax Law.
The Petitioners present the following facts. Each Petitioner is a general partnership
organized under New York law. Each Petitioner holds an interest in real property as follows:
Petitioner

Property

Type of interest

149 Realty Associates
Shelburne Murray Hill
Patrick Denihan et al
Plaza 50 Company
Chelsea Tower Company
Lyden Hotel Co.

500 West 37th Street, New York
303 Lexington Avenue, New York
222 East 39th Street, New York
155 East 50th Street, New York
371 Seventh Avenue, New York
20 East 76th Street, New York

Fee
Fee
Fee
Leasehold
Fee
Leasehold

None of the property owned or leased by any of the Petitioners comprises cooperative
housing dwellings.
Each Petitioner is beneficially owned by the same six individuals, as outlined in the
following ownership chart:
Ownership
Partner
Percentage
Daniel Denihan, Jr.
Benjamin Denihan, Jr.
Brooke Barrett
Maureen Ferrari
Donald Denihan
Laurence Denihan

16.66%
16.66%
16.66%
16.66%
16.66%
16.66%

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TSB-A-99(5)R
Real Estate Transfer Tax
September 17, 1999

Each partner in each Petitioner shares equally in all items of partnership profit, loss and
capital, and each has equal voting and distribution rights.
Each Petitioner proposes to transfer its respective real property interest to a separate limited
liability company ("LLC") in exchange for all of shares in such LLC. Each such LLC will be
organized under New York law. Each Petitioner will continue to exist as a general partnership
subsequent to the transfer of its real property interest.
The LLC shares received by each Petitioner in exchange for the transfer of its real property
interest will be distributed by such Petitioner to its six individual partners. Thereafter, each LLC will
be owned in equal shares by such six individuals, as members of each LLC, as follows:
Proposed Ownership of Each LLC:
Partner

Ownership
Percentage

Daniel Denihan, Jr.
Benjamin Denihan, Jr.
Brooke Barrett
Maureen Ferrari
Donald Denihan
Laurence Denihan

16.66%
16.66%
16.66%
16.66%
16.66%
16.66%

Applicable Law
Section 1402 of the Tax Law imposes the real estate transfer tax on each conveyance of real
property or interest therein when the consideration exceeds five hundred dollars. The term
"conveyance" is defined in section 1401(e) of the Tax Law. Included in the definition of conveyance
is the transfer or transfers of any interest in real property by any method.
Subdivision (f) of section 1401 of the Tax Law provides:
(f) "Interest in the real property" includes title in fee, a leasehold interest, a
beneficial interest, an encumbrance, development rights, air space and air rights, or
any other interest with the right to use or occupancy of real property or the right to
receive rents, profits or other income derived from real property. . . . (emphasis
added)
Finally, section 1405(b)(6) of the Tax Law sets forth that conveyances are exempt from the
real estate transfer tax to the extent that they "effectuate a mere change of identity or form of
ownership or organization where there is no change in beneficial ownership. . . ."

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TSB-A-99(5)R
Real Estate Transfer Tax
September 17, 1999
Conclusions
The respective transfers of the real property interest of each Petitioner to a new LLC will be
taxable conveyances of real property, pursuant to sections 1402 and 1401(e) of the Tax Law.
However, because the ownership of each new LLC will be identical to the ownership of each
Petitioner prior to the transfers, there will be no change in the beneficial ownership of each interest
in real property as a result of the transfers. Therefore, the transfers would be exempt from the real
estate transfer tax based on the mere change of identity or form of ownership exemption provided
in section 1405(b)(6) of the Tax Law.

DATED: September 17, 1999

NOTE:

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

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