One of the most overlooked (and therefore penalized) filings required as part of some probate or trust administrations is the Statement of Change in Control and Ownership of Legal Entities (Form BOE-100-B). A person must file a BOE-100-B within 90 days of a transfer of control or ownership of any legal entity (corporation, partnership, LLC) that holds an ownership or leased interest in California real property.
- Change in Control occurs when a person or legal entity acquires more than 50% of the ownership interest in a legal entity. In the case of corporations, an ownership interest is in the voting stock and in the case of partnerships or limited liability companies, an ownership change is by the total interest in capital and profits.
- Change in Ownership occurs when there is a transfer of ownership interest in a legal entity that results in a cumulative transfer of more than 50% of original co-owner interests in that entity.
For a change in control or change in ownership purposes, an interest in real property includes any of the following:
- Owned land, buildings and structures, or fixtures;
- Land, buildings and structures, or fixtures held under lease from a private owner if the remaining term of the lease exceeds 35 years;
- Land, buildings and structures, or fixtures held under lease from a public owner for any term; or
- Mineral rights, including working interest in oil, gas and geothermal properties owned or leased.
Under current law, a penalty will be imposed if the taxpayer fails to file the Form BOE-100-B within 90 days from the date it is due. The penalty is generally equal to:
- 10% of the taxes applicable to the new base year value reflecting the change in control or change in ownership
- 10% of the current year taxes on the property if no change in control or change in ownership of the entity occurs.
The law does not provide for any extensions.
- Transfer on Death. The law states that the BOE-100-B must be filed within 90 days of the transfer of ownership. The pitfall comes when there is a transfer due to someone’s death. The transfer is defined to have occurred as of the date of death. Unfortunately, many people may not have even begun to administer an estate with 90 days of the date of death of a loved one. Many estates include real property held in LLC’s or other entities for asset protection purposes. It is important that your successor Trustee understand that penalties will be imposed if the form is not filed with the time limit.
- Cumulative Change in Ownership. It is also important to also keep track of how much of the entity has been transferred since the entity has owned an interest in the real estate. Remember that Change in Ownership occurs when there is a cumulative transfer of 50% of original ownership of the entity. Therefore, even a 1% interest transfer in the entity can trigger the 90-day countdown to file. Many do not feel such a small transfer would require a filing and, therefore, don’t pay attention. However, this could cost you thousands, or more, when the property is transferred again and the penalties are assessed.