Our Mitchell-Lama co-op board originally planned to privatize by transferring the building to a brand-new corporation -- but got private letter rulings from both the state and NYC saying that transfer would trigger about $14 million in combined transfer taxes. So instead we restructured the plan to simply AMEND OUR EXISTING CERTIFICATE OF INCORPORATION to convert from a nonprofit Mitchell-Lama entity into a for-profit private cooperative, with no separate transferee corporation at all. Does avoiding a literal transfer to a new legal entity get us out of New York's Real Estate Transfer Tax?

Plain-English summary

East Midtown Plaza Housing Company, Inc. ("EMP") owned a 746-unit Mitchell-Lama residential cooperative in Manhattan, organized under Article II of the Private Housing Finance Law (PHFL) with 184,033.09 issued shares, operated under NYC Department of Housing Preservation and Development (HPD) supervision on a not-for-profit, income-restricted basis. On December 14, 2004, EMP's shareholders voted to withdraw from the Mitchell-Lama Program. EMP's original conversion plan contemplated transferring the property to a brand-new corporation organized under the Business Corporation Law (BCL) — but concerned about the transfer-tax consequences, EMP requested private letter rulings from both the New York State Department of Taxation and Finance and the New York City Department of Finance in 2006. Both agencies confirmed the transfer would trigger their respective transfer taxes (a combined state+city rate of about 3.025%), which EMP estimated at approximately $14,000,000.

To try to avoid that result, EMP redesigned its plan: rather than transferring the property to a new corporation, EMP would simply amend and restate its OWN existing certificate of incorporation, converting EMP itself from a PHFL nonprofit entity into a for-profit BCL private cooperative housing corporation — with no separate transferee entity at all. Under this approach (approved for filing by the NY Attorney General's Office in February 2008 as a Cooperative Offering Plan), existing shareholders would automatically remain shareholders of the reconstituted EMP with no reallocation of shares (though maintenance charges would be reallocated by apartment value, and voting would shift from one-vote-per-apartment to one-vote-per-share); shareholders who opted out ("Non-Participants") could either surrender shares for a cash payment (based on $25/share equity plus capital assessments, less deductions) or remain as tenants under a renewable "Special Lease." EMP's counsel argued that at least three other Mitchell-Lama cooperatives had reconstituted via certificate amendment without triggering transfer tax, and that the NY Department of State would accept such an amendment for filing — but EMP's own Offering Plan candidly disclosed there was "no assurance" the tax departments wouldn't still apply the ~$14 million in transfer taxes to the amendment/restatement itself.

The Department's opinion confirmed the state tax departments' skepticism was well-founded: even though ownership of the property would not be conveyed "in the conventional sense" to a newly formed corporation, PHFL §35(3) still requires DISSOLUTION of the PHFL entity to exit Mitchell-Lama restrictions — and that dissolution-and-reconstitution produces a substantive change in the nature of the entity owning the property and in the financial benefits/restrictions attached to the shares (shareholders gain unrestricted market-value resale rights; EMP loses PHFL tax and financing benefits; HPD's income-eligibility and maintenance oversight ends). Accordingly, for Tax Law Article 31 purposes, the Department treated EMP's self-amendment as a conveyance BY EMP-as-sponsor TO a cooperative housing corporation (the reconstituted EMP) of the real property comprising the cooperative dwelling — taxable under Tax Law §1402(a), with consideration equal to any cash received, mortgages/liens on the property, and the fair market value of the reconstituted corporation's shares transferred to EMP as sponsor. As in the Department's parallel Cadman Towers ruling (TSB-A-08(4)R, decided about six weeks earlier) and the later TSB-A-10(2)R, the Tax Law §1405(b)(6) mere-change-of-form exemption does NOT shelter this building-level conveyance, because that exemption is expressly carved out for conveyances to a cooperative housing corporation.

Layered on top: the NEW shares deemed conveyed to participating shareholders (with their proprietary leases) are ALSO separately taxable — though this share-level conveyance CAN qualify for the mere-change exemption to the extent beneficial ownership doesn't really change, and a Tax Law §1405-B(a) credit is available against the building-level tax already paid. If any individual apartment's share conveyance is $1 million or more, the additional 1% tax under §1402-a applies too. Finally, Non-Participants surrendering their EMP shares (along with terminating their occupancy agreements) for a cash payment trigger a separately taxable "subsequent conveyance" of cooperative stock, measured by the cash payment received.

What this means for you

Restructuring a Mitchell-Lama privatization to avoid a literal transfer to a new entity does not avoid RETT

Even a certificate-of-incorporation self-amendment -- with the exact same legal entity continuing to exist, no new corporation formed, and shareholders automatically carrying over -- is treated by the Department as a taxable sponsor-to-cooperative-housing-corporation conveyance, because the PHFL-mandated dissolution to exit Mitchell-Lama still substantively changes what the shares represent.

"No assurance" language in an Offering Plan is a real signal, not boilerplate

EMP's own Offering Plan candidly flagged that the tax departments might not agree the restructuring avoided transfer tax -- and that's exactly what happened. If your privatization plan's own disclosure documents hedge on the tax outcome, budget for the worse-case tax treatment rather than assuming the more favorable one will hold.

Precedent from other Mitchell-Lama co-ops doing a similar amendment without paying transfer tax isn't a reliable guide

EMP's counsel pointed to at least three other Mitchell-Lama cooperatives that reportedly reconstituted via certificate amendment without transfer tax being imposed -- but an Advisory Opinion binds the Department only as to the petitioner who requested it; this ruling shows the Department was prepared to reach a different, taxable conclusion on essentially the same structure once actually asked.

This ruling is part of a consistent three-ruling Mitchell-Lama privatization doctrine

TSB-A-08(3)R (EMP, self-amendment), TSB-A-08(4)R (Cadman Towers, merger into a new subsidiary), and TSB-A-10(2)R (a later, similarly-structured conversion) all reach the same substantive result through slightly different legal mechanics -- reinforcing that the Department's focus is on the substantive change in the shares' financial character, not the specific corporate-law technique used to get there.

Common questions

Q: If my Mitchell-Lama co-op amends its own certificate of incorporation instead of transferring the building to a new corporation, does that avoid Real Estate Transfer Tax?
A: No -- the Department treats a certificate-of-incorporation self-amendment used to exit Mitchell-Lama the same as a conveyance from the co-op (as sponsor) to a cooperative housing corporation, taxable under Tax Law §1402(a), because PHFL §35(3) still requires dissolution and the process substantively changes the shares' financial character.

Q: Do individual shareholders who stay in the reconstituted cooperative face their own separate tax event?
A: Yes -- the new shares issued to participating shareholders are a separately taxable conveyance, though it can qualify for the mere-change-of-form exemption and/or a credit against the tax already paid at the building level.

Q: What about shareholders who don't want to participate and instead cash out?
A: Their share surrender (along with terminating their occupancy agreement) is a taxable "subsequent conveyance" of cooperative stock, with the cash payment they receive as the taxable consideration.

Citations and references

Statutes and guidance:

• Section 1402(a) of the Tax Law
• Section 1402-a of the Tax Law
• Section 1401 of the Tax Law
• Section 1405(b) of the Tax Law
• Section 1405-B (a) of the tax Law
• Section 575.1(d)(1) of the Real Estate Transfer Tax Regulations
• Section 575.8 of the Real Estate Transfer Tax Regulations
• Section 575.11(a) of the Real Estate Transfer Tax Regulations
• Section 35 of Article II of the New York State Private Housing Finance Law
• TSB-A-08(4)R (East Midtown Plaza's sister Mitchell-Lama ruling, Cadman Towers)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2008.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a08_3r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Taxpayer Guidance Division

TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M080313A

On March 13, 2008, the Department of Taxation and Finance received a Petition for
Advisory Opinion from Lillian Wohl, 401 First Avenue, Apt. 15G, New York, New York 10010.
Petitioner, Lillian Wohl, provided additional information pertaining to the Petition on March 21,
2008, and March 28, 2008.
The issue raised by Petitioner is whether the transactions described below are subject to
the real estate transfer tax imposed by Article 31 of the Tax Law.
Petitioner submitted the following facts as the basis for this Advisory Opinion.
East Midtown Plaza Housing Company, Inc. (“EMP”) is currently the owner of certain
real property located in New York City (the “Property”). EMP is a limited-profit housing
company organized under Article II of the Private Housing Finance Law (“PHFL”). EMP
operates the Property under the supervision of the New York City Department of Housing
Preservation and Development (“HPD”) as a residential cooperative apartment building on a not­
for-profit basis for persons who meet income eligibility requirements set by HPD. EMP
currently has 184,033.09 issued and outstanding shares. There are 746 residential units and
several commercial spaces in the Property.
Having been formed under the PHFL, EMP is subject to the rules and regulations of the
Mitchell-Lama Program, which prevent shareholders of EMP from realizing the market value of
their interest in EMP upon the sale of their interest. Also EMP is provided certain advantageous
tax and financing benefits.
The Mitchell-Lama Program allows withdrawal from the program though the voluntary
dissolution of the limited-profit housing company. In conjunction with a dissolution of the
limited-profit housing company, the title to the property may then be conveyed to the owner of
the limited-profit housing company’s capital stock or to a corporation designated for that
purpose, or the limited-profit housing company may be reconstituted pursuant to the appropriate
laws relating to the formation and conduct of corporations. On December 14, 2004, in
furtherance of their intention to withdraw from participation in the Mitchell-Lama Program and
pursuant to the Mitchell-Lama rules of the HPD, the shareholders of EMP voted to adopt a
Withdrawal Resolution.
Upon withdrawal from the Mitchell-Lama Program, the existing mortgages encumbering
the land and building will be required to be satisfied. Additionally upon withdrawal, all surplus
funds remaining in the treasury of EMP prior to the voluntary dissolution are required to be
surrendered to New York City.

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

A voluntary dissolution and reconstitution and conversion plan (the Cooperative Offering
Plan or hereinafter the “Offering Plan”) to convert EMP to private cooperative ownership has
been accepted for filing by the Office of the New York State Attorney General. Under the
Offering Plan, in lieu of transferring the Property to a new corporation, EMP contemplates
dissolution of the limited-profit housing company and reconstitution as a corporation subject to
the provisions of the New York State Business Corporation Law (“BCL”) by means of amending
EMP’s existing certificate of incorporation, as further described in the pertinent parts of the
section of the Offering Plan entitled Nature of the Transaction, included below.
As reconstituted, EMP would be operated on a for-profit basis, would cease to be
governed by the PHFL, and would have all the powers and authority of a BCL corporation.
The dissolution of the limited-profit housing company and the reconstitution of EMP
under the BCL would mean that shareholders of EMP would be free to sell the shares
appurtenant to their apartments for current market value. The shareholders would no longer be
limited to selling their shares only to a specified list of purchasers at a price limited to equity
paid plus amortization.
The corporation while it is a PHFL corporation operates under the supervision and
direction of HPD. When EMP reconstitutes to become organized under the BCL, the supervision
and direction exercised by HPD would cease, waiting lists of income-eligible applicants would
be eliminated, HPD supervision of who can live in the building and of maintenance charges and
assessments would end, and EMP would have complete control over these matters.
There would be no reallocation of shares, but there would be a reallocation of
maintenance charges based on the relative value of the apartments. The voting arrangement
would change from one vote per apartment to one vote per share. As provided for in the section
of the Offering Plan, entitled Rights of Existing Shareholders, included below, shareholders of
the Sponsor immediately prior to privatization would automatically remain shareholders of the
Apartment Corporation immediately following privatization.
Further, current tenant
stockholders’ occupancy agreements appurtenant to their units would become proprietary leases
appurtenant to the shares issued in the private cooperative housing corporation that have been
allocated to their respective units. Tenant shareholders participating in the private cooperative
housing corporation would be required to agree to the terms and conditions of the proprietary
lease.
The Offering Plan provides two options for current shareholders who do not wish to
participate in ownership of the private cooperative housing corporation (Non-Participants). As
provided in both options the Non-Participants transfer their shares to EMP; these shares may be
offered for sale by EMP with proprietary leases for vacant units or the shares may be sold or held
by EMP for other units, subject to special leases. These options are described in the pertinent
parts of the section of the Offering Plan entitled Rights of Existing Shareholders, included below.

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

The Offering Plan was approved by the Office of the New York State Attorney General
in February 2008. The following are pertinent excerpts:
Introduction
The Offering Plan
The purpose of this Plan is to set forth all of the material terms of this offer to
reconstitute the Sponsor and convert to private cooperative ownership the Land, Building
and improvements thereon known as 319 East 24th Street, 320 East 25th Street, 311 East
23rd Street, 333 East 23rd Street, 400 Second Avenue, and 401 First Avenue, New York,
New York 10010. Such property to be converted to a private cooperative pursuant to this
Plan has been defined above in the Section entitled “Definitions” as the “Property”.
This Plan may be amended from time to time when an amendment is filed with
the New York State Department of Law. . . .
This Plan constitutes an offering statement for conversion of the Property and/or
reconstitution of the Sponsor pursuant to Article II of the Private Housing Finance Law
...
Nature of Transaction
[Note: The correct names of the taxes being discussed are New York State Real
Estate Transfer Tax and New York City Real Property Transfer Tax.]
The Property is presently owned by East Midtown Plaza Housing Company, Inc.
(the “Sponsor”), . . .
*

*

*

The Sponsor had previously contemplated accomplishing the dissolution and/or
reconstitution of East Midtown Plaza Housing Company, Inc. by transfer of its property
(including the Property) to a new corporation to be organized under the New York State
Business Corporation Law. In view of a concern that such a transfer of the Property
could result in significant New York City Real Property Tax and/or New York State Real
Estate Transfer Tax, in May 2006 the Sponsor requested private letter rulings from both
the New York State Department of Taxation and Finance and the New York City
Department of Finance in order to determine the respective tax departments’ position
upon such matter. Although the Sponsor had requested that the two tax departments
determine that the transfer of the Property in the context of the Sponsor’s dissolution
and/or reconstitution would be exempt or, at least, partially exempt, from the applicable
transfer taxes, the New York State Department of Taxation and Finance and New York

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

City Department of Finance issued separate private letter rulings, dated February 5, 2007
and November 30, 2006, respectively, stating that New York State Real Property
Transfer Tax and the New York City Real Estate Transfer Tax, respectively would
be due upon the transfer of the Property from the Sponsor to such a new corporation.
The aggregate tax rate (i.e., New York City Real Estate Transfer Tax @2.625% and
New York State Transfer Tax @0.4%) is currently 3.025%, which would likely have
been applied in case of such transaction to the market value of the Property or similar
basis, and the Sponsor had estimated an aggregate transfer tax of approximately
$14,000,000.
Although the Sponsor reserves the right to challenge such determinations, this
Plan currently contemplates effecting the dissolution and/or reconstitution by means of
amending and restating the Sponsor’s existing certificate of incorporation in lieu of the
transfer of the Property to a new corporation. Although the Private Housing Finance Law
did not provide for any particular mechanism for the amendment and restatement from a
Private Housing Finance Law corporation to a Business Corporation Law corporation, it
is the understanding of the Sponsor and its counsel that at least three Mitchell-Lama
cooperatives have similarly effected the dissolution and/or reconstitution by amending
and/or restating their certificates of incorporation and without the imposition of the
New York City Real Property Tax or New York State Real Estate Transfer Tax upon
such amendment and/or restatement. Furthermore, counsel for the New York State
Department of State has indicated to Sponsor’s counsel that an amendment and/or
restatement of the Sponsor’s certificate would be accepted for filing by the New York
State Department of State, subject to compliance with applicable statutory requirements.
It is the position of the Sponsor that no New York State Transfer Tax and New York City
Real Property Tax will be imposed solely by reason of amending and/or restating the
Sponsor’s certificate of incorporation as contemplated by this Plan. There can be no
assurance, however, that such transfer taxes do not apply, or that the New York State
Department of Taxation and Finance and the New York City Department of Finance will
not contend that such transfer taxes apply, to the amendment and/or restatement of the
Sponsor’s certificate of incorporation as contemplated by this Plan. If such transfer taxes
are imposed, it is estimated that the aggregate amount of such transfer taxes would be
approximately $14,000,000 calculated as set forth at the end of the immediately
preceding paragraph.
*

*

*

Rights of Existing Shareholders
Subject to the terms of this Plan, Shareholder-Offerees of the Sponsor who do not
want to remain shareholders will have two (2) options as enumerated in the remainder of
this Section entitled “Rights of Existing Shareholders” and otherwise in this Plan if the
shareholders vote for Withdrawal as described herein and Withdrawal occurs.

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

As set forth in this section and otherwise in this Plan, shareholders of the Sponsor
immediately prior to privatization will automatically remain shareholders of the
Apartment Corporation immediately following privatization. However, all shareholders
of the Sponsor may elect to surrender their shares of the Sponsor and (i) remain as tenants
under Special Leases renewable annually; or (ii) vacate the apartment for the Cash
Payment.
*

*

*

Cash Payments for Shareholder-Offerees
Those shareholders who do not wish to remain shareholders of the Apartment
Corporation may for a period of ninety (90) days from the Certification Date (the
“Exclusive Period”) exercise their right to obtain a Cash Payment for their shares (as
described herein); and in such event may continue to occupy their apartments solely if
they agree to, and enter into, the Special Lease (in which case the Cash Payment shall be
received by a Credit under the Special Lease as described herein).
For those shareholders electing the Cash Payment, but not electing to enter into a
Special Lease, they must execute and deliver to the Sponsor three (3) copies of the
Surrender Agreement (a copy of which is attached in part II of the Plan) on or before the
expiration of the Exclusive Period, together with their stock certificate and occupancy
agreement, which are to be held pending the privatization and returned if privatization
does not occur. Additionally, those shareholders electing the Cash Payment must vacate
their apartments within ninety (90) days of the Closing.
The Cash Payment is currently based upon the surrendering shareholder’s equity
in his/her apartment which the Sponsor has determined, and with HPD’s approval, to
total $25.00 per share, plus, to the extent not already included, capital assessments and
voluntary contributions approved by HPD (including but not limited to those voluntary
capital contributions previously paid for the installation of a greenhouse/enclosure), if
any, plus the surrendering shareholder’s portion of the amortization of the mortgage, less
any outstanding balances and restoration charges owed the Sponsor by the surrendering
shareholder. . . .
Special Lease for Shareholder-Offerees
As previously mentioned, those shareholders who do not wish to remain
shareholders of the Apartment Corporation may for a period of ninety (90) days from the
Certification Date (the “Exclusive Period”) exercise their right to obtain a Cash Payment
for their shares (as described herein); and in such event may continue to occupy their
apartments solely if they agree to, and enter into, the Special Lease (in which case the
Cash Payment shall be received by a Credit under the Special Lease).

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

For those shareholders electing to obtain the Cash Payment (by Credit under the
Special Lease), they must execute and deliver to the Sponsor three (3) copies of the NonParticipation Election Forms and Special Leases (copies of which are attached in Part II
of the Plan) on or before the expiration of the Exclusive Period, together with their stock
certificate and occupancy agreement, which are to be held pending the privatization and
returned if privatization does not occur.
Applicable law and regulations
Section 1402(a) of the Tax Law imposes the real estate transfer tax on each conveyance
of real property or interest therein and provides, in part:
A tax is hereby imposed on each conveyance of real property or interest therein
when the consideration exceeds five hundred dollars, at the rate of two dollars for each
five hundred dollars or fractional part thereof; . . .
Section 1402-a of the Tax Law provides, in part:
(a) In addition to the tax imposed by section fourteen hundred two of this article, a
tax is hereby imposed on each conveyance of residential real property or interest therein
when the consideration for the entire conveyance is one million dollars or more. For
purposes of this section, residential real property shall include any premises that is or
may be used in whole or in part as a personal residence, and shall include a one, two, or
three-family house, an individual condominium unit, or a cooperative apartment unit.
The rate of such tax shall be one percent of the consideration or part thereof attributable
to the residential real property. . . .
*

*

*

(c) Except as otherwise provided in this section all the provisions of this article
relating to or applicable to the administration, collection, determination and distribution
of the tax imposed by section fourteen hundred two of this article shall apply to the tax
imposed under the authority of this section with such modifications as may be necessary
to adapt such language to the tax so authorized. Such provisions shall apply with the
same force and effect as if those provisions had been set forth in this section except to the
extent that any provision is either inconsistent with a provision of this section or not
relevant to the tax authorized by this section.
Section 1401 of the Tax Law provides, in part:
When used in this article, unless otherwise expressly stated:
*

*

*

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

(b) “Controlling interest” means (i) in the case of a corporation, either fifty
percent or more of the total combined voting power of all classes of stock of such
corporation, or fifty percent or more of the capital, profits or beneficial interest in such
voting stock of such corporation, . . .
*

*

*

(d) “Consideration” means the price actually paid or required to be paid for the
real property or interest therein, including payment for an option or contract to purchase
real property, whether or not expressed in the deed and whether paid or required to be
paid by money, property, or any other thing of value. It shall include the cancellation or
discharge of an indebtedness or obligation. It shall also include the amount of any
mortgage, purchase money mortgage, lien or other encumbrance, whether or not the
underlying indebtedness is assumed or taken subject to.
*

*

*

(v) In the case of (i) the original conveyance of shares of stock in a
cooperative housing corporation in connection with the grant or transfer of a proprietary
leasehold by the cooperative corporation or cooperative plan sponsor and (ii) the
subsequent conveyance by the owner thereof of such stock in a cooperative housing
corporation in connection with the grant or transfer of a proprietary leasehold for a
cooperative unit other than an individual residential unit, consideration shall include a
proportionate share of the unpaid principal of any mortgage on the real property of the
cooperative housing corporation comprising the cooperative dwelling or dwellings. Such
share shall be determined by multiplying the total unpaid principal of the mortgage by a
fraction, the numerator of which shall be the number of shares of stock being conveyed in
the cooperative housing corporation in connection with the grant or transfer of a
proprietary leasehold and the denominator of which shall be the total number of shares of
stock in the cooperative housing corporation.
(e) “Conveyance” means the transfer or transfers of any interest in real property
by any method, including but not limited to sale, exchange, assignment, surrender,
mortgage foreclosure, transfer in lieu of foreclosure, option, trust indenture, taking by
eminent domain, conveyance upon liquidation or by a receiver, or transfer or acquisition
of a controlling interest in any entity with an interest in real property. . . .
(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. It shall also include an option
or contract to purchase real property. It shall not include a right of first refusal to
purchase real property.

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

Section 1405(b) of the Tax Law provides, in part:
The tax shall not apply to the following conveyances:
*

*

*

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;
   Section 1405-B (a) of the tax Law provides, in part:
   Notwithstanding the definition of “controlling interest” contained in subdivision
   (b) of section fourteen hundred one of this article or anything to the contrary contained in
   subdivision (e) of section fourteen hundred one of this article, the tax imposed by this
   article shall apply to (1) the original conveyance of shares of stock in a cooperative
   housing corporation in connection with the grant or transfer of a proprietary leasehold by
   the cooperative corporation or cooperative plan sponsor, and (2) the subsequent
   conveyance of such stock in a cooperative housing corporation in connection with the
   grant or transfer of a proprietary leasehold by the owner thereof. . . . In determining the
   tax on a conveyance described in paragraph one of this subdivision, a credit shall be
   allowed for a proportionate part of the amount of any tax paid upon the conveyance to the
   cooperative housing corporation of the real property comprising the cooperating dwelling
   or dwellings to the extent that such conveyance effectuated a mere change of identity or
   form of ownership of such property and not a change in the beneficial ownership of such
   property. The amount of the credit shall be determined by multiplying the amount of tax
   paid upon the conveyance to the cooperative housing corporation by a percentage
   representing the extent to which such conveyance effectuated a mere change of identity
   or form of ownership and not a change in the beneficial ownership of such property, and
   then multiplying the resulting product by a fraction, the numerator of which shall be the
   number of shares of stock conveyed in a transaction described in paragraph one of this
   subdivision and the denominator of which shall be the total number of shares of stock of
   the cooperative housing corporation (including any stock held by the corporation). In no
   event, however, shall such credit reduce the tax, on a conveyance described in paragraph
   one of this subdivision, below zero, nor shall any such credit be allowed for a tax paid
   more than twenty-four months prior to the date on which occurs the first in a series of
   conveyances of shares of stock in an offering of cooperative housing corporation shares
   described in paragraph one of this subdivision.
   Section 575.1(d)(1) of the Real Estate Transfer Tax Regulations provides, in part:

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

Consideration means the price actually paid or required to be paid for the real
property or interest therein, including payment for an option or contract to purchase real
property, whether or not expressed in the deed and whether paid or required to be paid by
money, property, or any other thing of value. It includes the cancellation or discharge of
an indebtedness or obligation. It also includes the amount of any mortgage, purchase
money mortgage, lien or other encumbrance, whether or not the underlying indebtedness
is assumed or taken subject to. . . . With respect to any conveyance of stock in a
cooperative housing corporation in connection with the grant or transfer of a proprietary
leasehold by the owner thereof, other than the original conveyance of stock by the
cooperative housing corporation or the cooperative plan sponsor, where the property is an
individual residential unit, the consideration for the interest conveyed will exclude the
amount of any liens on certificates of stock or other evidences of an ownership interest in
and a proprietary lease from a corporation or partnership, formed for the purpose of
cooperative ownership of residential interest in real estate remaining thereon at the time
of conveyance. No exclusion is made on account of any lien or encumbrance placed
upon the property in connection with the conveyance, or by reason of deferred payments
of the purchase price whether represented by notes or otherwise.
Section 575.8 of the Real Estate Transfer Tax Regulations provides, in part:
(a) Notwithstanding the definition of controlling interest contained in section
575.1(b) of this Part or anything to the contrary contained in section 575.1(e)(1) of this
Part, the real estate transfer tax applies to:
(1) the original conveyance of shares of stock in a cooperative housing
corporation in connection with the grant or transfer of a proprietary leasehold by the
cooperative housing corporation or cooperative plan sponsor; and
(2) the subsequent conveyance of such stock in a cooperative housing corporation
in connection with the grant or transfer of a proprietary leasehold by the owner thereof.
*

*

*

(c) Credit for tax previously paid.
(1) In the case of conveyances described in paragraph (a)(1) of this section, a
credit shall be allowed for a proportionate part of the amount of any tax paid upon the
conveyance to the cooperative housing corporation of the real property comprising the
cooperative dwelling or dwellings to the extent that such conveyance effectuated a mere
change of identity [or] form of ownership of such property and not a change in the
beneficial ownership of such property.

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TSB-A-08(3)R
Real Estate Transfer Tax
June 17, 2008

(2) The amount of the credit is determined by multiplying the amount of tax paid
upon the conveyance to the cooperative housing corporation by a percentage representing
the extent to which such conveyance effectuated a mere change of identity or form of
ownership and not a change in the beneficial ownership of such property, and then
multiplying the result by a fraction, the numerator of which is the number of shares of
stock conveyed in a transaction described in paragraph (a) (1) of this section and the
denominator of which is the total number of shares of stock of by cooperative housing
corporation (including any stock held by the corporation).
(3) The credit will not reduce the tax below zero. The credit will not be allowed
for a tax paid more than 24 months prior to the date on which occurs the first in a series
of conveyances of shares of stock in an offering of cooperative housing corporation
shares as described in paragraph (a)(1) of this section.

Section 575.11(a) of the Real Estate Transfer Tax Regulations provides, in part:
The following are examples of conveyances which are subject to the real estate
transfer tax.
*

*

*

(12) A conveyance by a sponsor to a cooperative housing corporation is subject to
tax. (Consideration in such case includes the amount of cash received by the sponsor, the
amount of any mortgages, liens or encumbrances on the real property and the fair market
value of the shares in the cooperative housing corporation which are transferred to the
sponsor.)
Section 35 of Article II of the New York State Private Housing Finance Law provides, in
part:
Voluntary dissolution. 1. A company aided by a loan made prior to May first,
nineteen hundred fifty-nine, may voluntarily be dissolved, with the consent of the
commissioner or of the supervising agency, as the case may be, not less than thirty-five
years after the occupancy date upon the payment in full of the remaining balance of
principal and interest due and unpaid upon the mortgage held by the state or a
municipality pursuant to this article and payment to the municipality of a sum equal to
the total of all accrued taxes for which tax exemption was granted and received pursuant
to section thirty-three of this article, provided however that such payment of accrued
taxes shall be waived if a company is voluntarily dissolved subsequent to the original
maturity date of any mortgage held by the state or a municipality pursuant to this article.
*

*

*

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3. Upon such dissolution, title to the project may be conveyed in fee to the owner
   or owners of its capital stock or to any corporation designated by it or them for the
   purpose, or the company may be reconstituted pursuant to appropriate laws relating to the
   formation and conduct of corporations, provided, however, that prior to any such
   dissolution and conveyance or reconstitution, payment shall be made of all current
   operating expenses, taxes, indebtedness and all accrued interest thereon and the par value
   of and accrued dividends on the outstanding stock of such company. If after making such
   payments, and after conveyance of the project, a surplus remains in the treasury of the
   company, such surplus, except in the case of a project aided by a state loan made after
   May first, nineteen hundred fifty-nine, shall upon dissolution, be paid into the general
   fund of the municipality which granted tax exemption. After such dissolution and
   conveyance, or such reconstitution, the provisions of this article shall become and be
   inapplicable to any such project and its owner or owners and any tax exemption granted
   with respect to such project pursuant to section thirty-three hereof shall cease and
   terminate.
   Opinion
   EMP is the owner of a Mitchell-Lama residential cooperative apartment property located
   in Manhattan. EMP is a limited-profit housing company organized under Article II of the Private
   Housing Finance Law (PHFL). EMP’s operation of this residential property is under the
   supervision of the New York City Department of Housing Preservation and Development
   (HDP).
   Under the PHFL, a limited-profit housing company may withdraw from the MitchellLama Program through voluntary dissolution. After the statutorily required dissolution (see
   section 35(3) of the PHFL), the property may be conveyed to the owners of the capital stock, or
   to another corporation, or the limited-profit housing company may be reconstituted pursuant to
   the appropriate laws relating to the formation and conduct of corporations (Section 35 of the
   PHFL).
   On December 14, 2004, in support of their intention to withdraw from the Mitchell-Lama
   Program, the shareholders of EMP voted to adopt a Withdrawal Resolution. Initially EMP
   contemplated that upon dissolution, the property would be transferred to a newly formed
   corporation organized under the New York State Business Corporation Law (BCL).
   Subsequently, EMP proposed that instead of conveying fee title to the property to a new
   corporation designated for such purpose, the limited-profit housing company (subject to the
   provisions of the PHFL) would be reconstituted into a private cooperative housing corporation
   subject to the provisions of the BCL (hereinafter the “private cooperative housing corporation”
   or the “private cooperative housing corporation under the BCL”). This reconstitution is
   proposed to be effected by amending EMP’s existing certificate of incorporation filed pursuant
   to the requirements of the PHFL so that the resulting certificate of incorporation complies with

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the provisions of the BCL and eliminates provisions in the existing certificate mandated and
governed by the PHFL. Other than for purposes of making a determination as to the applicability
of real estate transfer tax imposed under Article 31 of the Tax Law, this Opinion makes no
determination as to the legal propriety and effect of such amendments to EMP’s articles of
incorporation.
The Cooperative Offering Plan (Offering Plan) approved by the Office of the New York
State Attorney General in February 2008 described the above plan as its method of conversion.
Pursuant to the plan, if approved by the shareholders, the shareholders in the limited-profit
housing company have a choice of whether to participate in ownership of the private cooperative
housing corporation or to not participate and accept a cash payment. Those shareholders in EMP
opting not to participate in the ownership of the private cooperative would receive a cash
payment or credit for such cash payment in consideration of transferring their shares in EMP (the
limited-profit housing company) to EMP (the limited-profit housing company) to be held as
unsold shares by EMP as the Sponsor of the Offering Plan.
In the originally proposed conversion plan, upon dissolution as a limited-profit housing
company, EMP, as the sponsor, would transfer the property to a newly formed private
cooperative housing corporation. The current Offering Plan, as presented for purposes of this
Opinion, does not provide for the transfer of the property to a newly formed corporation, but
rather provides that the articles of incorporation for EMP as a limited-profit housing company
under the PHFL are amended to create EMP as a private cooperative housing corporation under
the BCL.
The current Offering Plan continues to establish EMP (the limited-profit housing
company formed under the PHFL) as a sponsor of a private cooperative housing corporation
(i.e., EMP the BCL entity). Structuring the transaction in this manner may be necessary for the
following reasons.
First, EMP will be recognized as the sponsor of a private cooperative housing corporation
offering since its dissolution plan allows those shareholders in the limited-profit housing
company who do not wish to participate in ownership of the private cooperative housing
corporation (Non-Participants) to turn in their shares in the limited-profit housing company
(together with the appurtenant occupancy agreements) in exchange for a cash payment. Upon
the creation of the private cooperative housing corporation under the BCL, EMP, as the sponsor,
holds the Non-Participant’s shares, which shares are deemed to be unsold shares in the private
cooperative housing corporation. These shares may be offered for sale by EMP with proprietary
leases for vacant units or the shares may be sold or held by EMP for other units subject to special
leases.
Further, prior to its dissolution as an entity created pursuant to the PHFL, EMP also is
required to satisfy existing mortgages encumbering the land and buildings, and then surrender
any surplus funds in its treasury to New York City. (See section 35(3) of the PHFL.)

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There will be a substantive change in the nature of the reconstituted entity as represented
in the Offering Plan. Pursuant to the PHFL statutory scheme, EMP shareholders’ economic
interest in the property prior to dissolution is restricted by HPD. In exchange for the restrictions
on the shareholders’ rights in the property, EMP is allowed certain advantageous tax and
financing benefits. Upon reconstitution, EMP shareholders’ ability to sell their cooperative
interest will no longer be restricted by HPD. In addition, EMP will no longer enjoy many of the
tax and financing benefits it is allowed under the PHFL statutory scheme.
As represented in the Nature of the Transaction section of the Offering Plan, the Tax
Department advised that the transfer of the property from EMP to a newly formed cooperative
housing corporation as contemplated in the original conversion plan is a conveyance that would
be subject to real estate transfer tax under Article 31 of the Tax Law. The current Offering Plan
provides that EMP will no longer exist as a PHFL company but as a BCL corporation with the
rights and benefits of a private cooperative housing corporation.
While the ownership of the Property, as contemplated in the current Offering Plan, would
not be conveyed in the conventional sense to a newly formed corporation, pursuant to section
35(3) of the PHFL there must be a dissolution of EMP in order to remove the restrictions of the
Mitchell-Lama Program. As a result, there is a substantive change in the nature of the entity that
owns the Property. The dissolution and reconstitution will result in changes in the financial
benefits and restrictions appurtenant to the shares in EMP prior to the conversion and the shares
in EMP after the conversion.
The shareholders opting to participate in the conversion will receive an unrestricted
ownership interest in EMP as a private cooperative housing corporation. Moreover, the
shareholders’ interest in the cooperative real property will no longer be regulated by HPD and
could be freely conveyed without restriction to purchasers of a shareholder’s choosing.
This substantive change in the ownership of the Property is further evidenced by the fact
that EMP is required to develop a cooperative offering plan to be filed with the Office of the
New York State Attorney General. The Offering Plan includes a provision allowing
shareholders to opt out of ownership in EMP prior to it becoming a private cooperative housing
corporation.
Accordingly, for the purposes of Article 31 of the Tax Law, the conversion of EMP from
a limited-profit housing company to a private cooperative housing corporation with EMP as the
plan sponsor of a cooperative housing corporation constitutes a conveyance by the plan sponsor
to a cooperative housing corporation of the real property comprising the cooperative dwelling,
which transaction is subject to real estate transfer tax under section 1402(a) of the Tax Law. The
consideration for the conveyance is the amount of cash received by EMP as the sponsor; the
amount of any mortgages, liens, or encumbrances on the real property; and the fair market value
of the shares in the cooperative housing corporation after reconstitution. See section
575.11(a)(12) of the Real Estate Transfer Tax Regulations. In general the transaction described

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above would be deemed to constitute a mere change of identity or form of ownership or
organization. However, the exemption provided under section 1405(b)(6) of the Tax Law for
conveyances that effectuate a mere change of identity or form of ownership or organization does
not apply to conveyances to a cooperative housing corporation of real property comprising the
cooperative dwellings.
In addition to the conveyance from the sponsor to the private cooperative housing
corporation, upon conversion from a PHFL cooperative to the BCL cooperative, the shares in
EMP, as a private cooperative housing corporation, will be deemed to have been conveyed to the
shareholders of the limited-profit housing company (those who have not opted to become NonParticipants) as an original conveyance of shares representing each shareholder’s ownership
interest in the private cooperative housing corporation, with a proprietary lease for each
shareholder’s respective unit. This conveyance is also subject to real estate transfer tax. See
section 575.8(a)(1) of the Real Estate Transfer Tax Regulations. Consideration for each original
conveyance of shares of stock in the private cooperative housing corporation by EMP is deemed
to be the fair market value of the shares apportioned to each unit. See section 1401(d) of the Tax
Law. However, to the extent that the conveyance of the shares in the private cooperative housing
corporation to the participating shareholders of the limited-profit housing company effects a
mere change in the identity or form of ownership or organization where there is no change in
beneficial ownership, the mere change exemption under section 1405(b)(6) of the Tax Law may
apply.
As previously noted the real estate transfer tax applies to transfers by a sponsor to a
cooperative housing corporation of the property comprising the cooperative dwellings
notwithstanding that there may have been no change in beneficial ownership. Pursuant to
section 1405-B(a) of the Tax Law and section 575.8(c) of the Real Estate Transfer Tax
Regulations a credit is allowed for a proportionate part of the amount of any tax paid upon the
conveyance by the sponsor to the cooperative housing corporation of the property against the tax
imposed on the original conveyance of shares of stock in the cooperative housing corporation in
connection with the grant or transfer of a proprietary lease. Thus, to the extent the mere change
rule is not otherwise applicable, any real estate transfer tax on the conveyance of shares in the
private cooperative housing corporation to the participating shareholders may be offset by a
credit for a proportionate part of the amount of any real estate transfer tax paid upon the
conveyance by EMP (the limited-profit finance housing company) to EMP (the private
cooperative housing corporation) of the interest in the real property comprising the cooperative
dwellings.
It should be noted that pursuant to section 1402-a(a) of the Tax Law if the consideration
for the conveyance of shares related to an individual cooperative apartment unit is $1 million or
more, the conveyance will be subject to an additional 1% tax at the time of conveyance.
However, as stated above, the mere change exemption may apply if the conveyance effectuates a
mere change of identity or form of ownership or organization.

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The conveyance to EMP (the limited-profit housing company) by Non-Participants of
their shares in EMP prior to its conversion, along with their occupancy agreements that the non­
participating shareholder agrees to terminate, is considered to be a subsequent conveyance of
stock in a cooperative housing corporation, which conveyance is subject to real estate transfer
tax. See section 575.8(a)(2) of the Real Estate Transfer Tax Regulations. The consideration for
such subsequent transfers will be the cash payment received by the non-participating
shareholder. See section 575.1(d)(1) of the Real Estate Transfer Tax Regulations.

DATED: June 17, 2008

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist IV
Taxpayer Guidance Division

An Advisory Opinion is issued at the request of a person or entity. It is
limited to the facts set forth therein and is binding on the Department only
with respect to the person or entity to whom it is issued and only if the
person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department
policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.