A husband and wife subdivided lakefront land into lots, sold four, and later put the remaining nine lots into a family trust for estate planning, gradually gifting beneficial interests to their children. When the trust liquidates and distributes the lots to all nine beneficiaries proportionally, does New York's Real Property Transfer Gains Tax apply to that distribution, and are the beneficiaries' later individual sales of their lots aggregated with each other for the $1 million threshold?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1993 opinion is preserved here for historical and research value, not as current law.

A husband and wife had owned about 18.62 acres of lakefront land in Warren County since 1945/1968. In 1976 they subdivided the property into 13 lots (12 counting as "building lots," since one lakefront lot was set aside as shared beach access). They sold four lakefront lots between 1978 and 1980, keeping the remaining nine. In 1988, for estate planning, they placed those nine lots into a grantor trust (Diamond Point Realty Trust) and, over the following years, gifted beneficial interests to their four children and (for three of them) the children's spouses -- keeping the total gifted interest under 50%. By 1993, the trust had nine beneficiaries total: the parents, the four children, and three spouses, each owning a percentage beneficial interest. All nine beneficiaries decided to liquidate the trust and distribute the lots proportionally: three lots (matching their percentage share) to the parents, and the remaining six lots (including fractional and co-owned interests, since lot values and beneficial percentages didn't line up evenly) to the other seven beneficiaries.

The Department held that this trust liquidation was a "transfer by partition" of real property under former § 1440.7 -- each beneficiary is treated as transferring their interest in the jointly held trust property in exchange for receiving a specific parcel interest. Because multiple beneficiaries received interests from a single liquidation event, former 20 NYCRR § 590.43(d) required aggregating all the beneficiaries' consideration to test whether the combined value hit the $1 million threshold. But because the beneficiaries already owned their proportionate beneficial interests in the trust before the liquidation, former § 1443.5's mere-change-of-identity exemption applied PARTIALLY: each beneficiary owed gains tax only on the net increase, if any, in their beneficial interest in each specific parcel -- not on the portion that simply mirrored what they already owned through the trust. On a second question, the Department applied the Tax Appeals Tribunal's ruling in Matter of Kim Poy Lee (1992) to hold that the children's and their spouses' later, separate sales of their individual lots would still be aggregated with EACH OTHER, because their close family relationship meant they weren't "separate and distinct" transferors as required for the subdivided-parcel aggregation exception (former § 590.43(b), (g)) to break the link. However, the parents' own later lot sales would NOT be aggregated with the children's sales, because the parents had no beneficial interest in, or control over, the lots the trust had already distributed to the children.

What this means for you

Families using trusts to gift real estate to multiple beneficiaries

Under this now-repealed tax, distributing trust-held real property to several beneficiaries in proportion to their existing beneficial interests wasn't automatically fully taxable -- the mere-change exemption reached the portion of each beneficiary's share that simply reflected what they already owned. But because a liquidation distributing property to several people at once is a form of "partition," the combined value of everyone's shares still had to be tested against the $1 million threshold together.

Trustees planning multi-beneficiary liquidations

This opinion illustrates the mechanics of applying a PARTIAL mere-change exemption in a multi-party liquidation: figure out each beneficiary's pre-liquidation percentage interest in the whole trust property, then measure how much (if any) their post-liquidation specific-parcel interest exceeds that baseline.

Accountants tracking related-party sales for aggregation purposes

The Kim Poy Lee "separate and distinct transferors" test discussed here shows that family relationships (like siblings or a parent and child) can defeat the subdivided-parcel aggregation exception even when each person legally owns a distinct lot -- aggregation turns on independence of ownership and dealing, not just formal title separation.

Common questions

Q: Does this trust-liquidation partition rule still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York taxes on real property transfers have their own separate rules for trust distributions and partitions.

Q: Why wasn't the ENTIRE distribution to each beneficiary exempt as a mere change of identity?
A: Because the specific parcels didn't divide up in exact proportion to everyone's beneficial interest -- some beneficiaries ended up with a bigger (or different) slice of specific real estate than their trust percentage alone would have given them, so only the portion matching their pre-existing interest was exempt.

Q: Why would the children's and spouses' individual future sales be aggregated with each other but not with the parents'?
A: The aggregation rules look at whether transferors are truly independent of one another. The Department found the children and their spouses, as a closely related family group, weren't sufficiently "separate and distinct" from each other -- but the parents, once they no longer had any interest in or control over the children's lots, were independent of them.

Q: Can another family trust liquidation rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and the aggregation and mere-change outcomes here depended on the specific beneficial-interest percentages, lot values, and family relationships described.

Citations and references

Statutes and regulations:

• former Tax Law § 1441 and § 1443.1 (the gains tax: 10% of gain on NY real property transfers with consideration of $1 million or more)
• former Tax Law § 1440.7 (definition of "transfer of real property," including a transfer upon liquidation or by partition)
• former Tax Law § 1440.1 (definition of "consideration": the price paid or required to be paid, including the fair market value of property received in exchange)
• former Tax Law § 1443.5 (exemption for a transfer that is a mere change of identity or form of ownership, with no change in beneficial interest)
• former 20 NYCRR § 590.43(b) (consideration paid to several transferors of separate, independent, contiguous/adjacent parcels to one transferee is NOT aggregated)
• former 20 NYCRR § 590.43(d) (consideration paid to several transferors who jointly own ONE parcel, as tenants in common/joint tenants/tenants by the entirety, MUST be aggregated to test the $1 million threshold)
• former 20 NYCRR § 590.43(g) (subdividing real property is generally subject to aggregation, except for subdivided parcels improved with residences used for residential purposes)
• Matter of Kim Poy Lee, Eunice Tan, Hugh Kee Lee, et al., Dec. Tax App. Trib., October 15, 1992 (related transferors selling in the same transaction to one purchaser must demonstrate genuine independence to avoid aggregation as "several" transferors)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a93_10r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (10)R
Real Property
Transfer Gains Tax
June 15, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M930304B

On March 4, 1993, a Petition for Advisory Opinion was received from Diamond Point Realty
Trust, 288 Glen Street, P.O. Box 299, Glens Falls, New York 128010299.
The issues raised by Petitioner, Diamond Point Realty Trust, are:
1.

Whether the Real Property Transfer Gains Tax (hereinafter the "gains tax") applies
to the transfer of separate lots in a subdivision from a trust to the individual
beneficiaries of the trust.

2.

Whether the consideration received by a husband and wife from the subsequent sales
of their lots will be aggregated with the consideration received by the children and
their spouses from the subsequent sales of their lots for purposes of the gains tax.

A husband and wife acquired title to certain property by deeds in 1945 and 1968. The
property consisted of approximately 18.62 acres located in Warren County, New York.
In 1976, the appropriate governmental authorities approved a subdivision plan for the
property, pursuant to which the property was subdivided into 13 separate lots. Lots 1 through 8
include frontage upon a lake. Lots 9 through 13 are back lots, without direct lake frontage. Lot 1, one
of the lakefront lots, was designed as a beach lot for the purpose of providing lake access for five
non-lakefront lots, and therefore, the subdivision consists of twelve "building lots". At the time
subdivision approval was granted in 1976, two of the lakefront lots were, and presently are,
improved with single family residential structures.
Four of the individual lakefront lots were subsequently sold by the husband and wife. The
first lot which was sold was a lakefront lot improved by a single family structure, which was sold
in 1978. Two vacant lakefront lots were sold in 1979, and an additional vacant lakefront lot was sold
in 1980. The husband and wife continued to own the remaining nine lots of the subdivision
subsequent to 1980.
By Trust Indenture dated December 30, 1988, the husband and wife created Petitioner, a
grantor trust. The husband and wife were the original sole beneficiaries of the Trust. On December
30, 1988, the husband and wife conveyed the nine (9) remaining lots of the subdivision to Petitioner.
Petitioner was created by the husband and wife for estate planning purposes, as a means of
making gifts to their children and the spouses of their children in order to remove assets from their
taxable estates. Subsequently, they have made numerous gifts of their beneficial interest in
Petitioner. Gifts were made each year from 1988 through and including 1993. The total beneficial

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interest in Petitioner transferred by them to their children was less than fifty percent. At the present
time, there are a total of nine beneficiaries of Petitioner, including the husband and wife, their four
children and the spouses of the three of their children. Each of the beneficiaries is the owner of a
percentage beneficial interest in Petitioner.
Each of the beneficiaries of Petitioner contributes to the annual expenses of maintaining
Petitioner and the real property owned by Petitioner, such as real estate taxes and upkeep and repairs
of the property. Contributions are made by each beneficiary according to their percentage beneficial
interest in Petitioner. In addition to the real property, Petitioner also owns a small amount of liquid
assets.
The current Trustee of Petitioner is one of the husband and wife's children, who is also one
of the beneficiaries of Petitioner.
All of the beneficiaries have decided to liquidate Petitioner and distribute the property to all
of the beneficiaries in proportion of their respective beneficial interest in Petitioner. Three of the lots
will be distributed to the husband and wife. These three lots have a current fair market value equal
to their percentage beneficial interest in the total fair market value of all of the property owned by
Petitioner.
The remaining six lots (including the lot designated as a "beach lot") would be transferred
to the remaining seven beneficiaries. Each of the beneficiaries would receive title to property having
a fair market value equal to each such beneficiaries' percentage interest in the total fair market value
of all the property currently held by Petitioner. The husband and wife will not control the actions of
the beneficiaries as to the use of the property following the transfer. Since the seven children and
spouses each have a different beneficial interest in Petitioner, and since each of the lots has a
different fair market value, each of the children and spouses will be receiving title to a fractional
interest in one or more lots. For example, one beneficiary may receive title to one lot plus a
fractional interest in a second lot, while a second beneficiary may only receive a fractional interest
in one lot. In addition, each of the five non-lakefront building lots will include a one-fifth interest
in the beach lot.
Further, the properties transferred to the beneficiaries are not subject to any mortgages, liens
or other encumbrances.
Pursuant to Sections 1441 and 1443.1 of the Tax Law and Section 590.1 of the Gains Tax
Regulations the gains tax is a ten percent tax on the gain derived from the transfer of real property,
which includes the acquisition or transfer of a controlling interest in any entity with an interest in
real property, where the property is located in New York State and where the consideration for the
transfer is one million dollars or more.
Section 1440.7 of the Tax Law defines the term "transfer of real property", in part, to mean
the transfer or transfers of any interest in real by any method. This would include a transfer upon
liquidation or a transfer by partition.

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Section 1440.1 of the Tax Law defines the term "consideration", in pertinent part, to mean
the price paid or required to be paid for real property or any interest therein, less any customary
brokerage fees related to the transfer if paid by the transferor...whether expressed in a deed and
whether paid or required to be paid by money, property, or any other thing of value.
Section 1443 of the Tax Law provides, in pertinent part, as follows:
Sec. 1443. Exemptions.-- A total or partial exemption shall be allowed in the
following cases:
*

*

*

5. If a transfer of real property, however effected, consists of a mere change
   of identity or form of ownership or organization, where there is no change in
   beneficial interest.
   Section 590.43 of the Gains Tax Regulations provides, in part, as follows:
   590.43 Aggregation of partial or successive transfers of real property. [Tax
   Law, S 1440(7)]
   Question: How is the aggregation clause of section 1440(7) of the Tax Law,
   which states in part:
   " ... Transfer of real property shall also include partial or successive
   transfers, unless the transferor or transferors furnish a sworn
   statement that such transfers are not pursuant to an agreement or plan
   to effectuate by partial or successive transfers a transfer which would
   otherwise be included in the coverage of this article, and the transfer
   of real property by tenants in common, joint tenants or tenants by the
   entirety, provided that the subdividing of real property and the sale of
   such subdivided parcels improved with residences to transfers for use
   as their residences, other than transfers pursuant to a cooperative or
   condominium plan, shall not be deemed a single transfer of real
   property."
   applied in the case of:
   *

*

*

(b) Several transferors, each owning a separate parcel of land, each parcel
contiguous with or adjacent to the others, one transferee?
Answer: The consideration is not aggregated, even if there is a clause in each
contract that conditions the sale of each parcel on the ability of the transferee to
acquire the other contiguous or adjacent parcels. The consideration paid to each

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transferor is not aggregated even in the case of one contract between the transferee
and the several transferors.
*

*

*

(d) Several tranferors, owning one parcel of land either as joint tenants,
tenants in common, or as tenants by the entirety, one transferee?
Answer: The statute specifically requires that the consideration paid to each
such transferor be aggregated with the consideration paid to the other transferors in
determining whether the consideration is $1 million or more. Once the million-dollar
threshold is met, each transferor is liable for payment of tax based on the
consideration he receives, less his original purchase price for the property.
*

*

*

(g) Question: Will the subdividing of real property be subject to aggregation
pursuant to Section 1440(7) of the Tax Law?
Answer: Yes. Section 1440(7) of the Tax Law specifically provides that all
subdividing of real property is subject to the aggregation rule, except in the case
where the subdivided property is improved with residences and is used for residential
purposes, other than those pursuant to cooperative or condominium plans.
In Matter of Kim Poy Lee, Eunice Tan, Hugh Kee Lee, Et al., Dec Tax App Trib, October
15, 1992, the Tax Appeals Tribunal (hereinafter the "Tribunal") held that the Department properly
aggregated the consideration received from petitioners' transfers of certain lots. In that instance
petitioners sold four lots to a single transferee. Two of the petitioners held an interest in all four
properties. Two others held interests in three, while the remaining three held interests in two
properties. Some of the parties were related, and all the interests were sold in the same transaction
at the same time to one purchaser. The Tribunal, in citing Section 590.43(b) of the Gains Tax
Regulations explained that in order for the parties to be deemed "several" transferors, such parties
must demonstrate independence with respect to their ownership interests and the transfers thereof.
The Tribunal further elaborated that the use of the words "several" and "separate" in the regulation
indicates that it is aimed at the situation where independent and separate owners of contiguous and/or
adjacent parcels are sold to an individual needing to purchase all the parcels for a particular real
estate project, and in the case at hand, the transferors were not separate and distinct as to each parcel
or to each other as contemplated by the regulation.
Concerning issue "1", the liquidation of Petitioner and the transfer of lots to the beneficiaries
constitutes the partition of the real property that was owned jointly by the beneficiaries through their
beneficial interest in Petitioner. Pursuant to Section 1440.7 of the Tax Law a transfer by partition

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constitutes the transfer of real property. Moreover, pursuant to Sections 1441 and 1443.1 of the Tax
Law and Section 590.1 of the Gains Tax Regulations, the transfer of real property located in New
York State for a consideration of one million dollars or more is subject to gains tax. In the instant
case, each beneficiary is deemed to be the transferor of an interest in the jointly owned real property.
Also, each beneficiary is deemed to be receiving an interest in real property in exchange for the
interest transferred.
In accordance with Section 1440.1 of the Tax Law, the consideration for the transfer to each
beneficiary is equal to the fair market value of the interest in real property received in exchange for
their interest in Petitioner. Pursuant to Section 590.43(d) of the Gains Tax Regulations, the
consideration paid to each such beneficiary must be aggregated with the consideration paid to the
other beneficiaries to determine whether the consideration is one million dollars or more. Once the
one million-dollar threshold is met, each beneficiary is liable for payment of the gains tax based on
the consideration he or she receives, less his or her original purchase price for the property. If is
noted, however, that pursuant to Section 1443.5 of the Tax Law each beneficiary is entitled to a
partial mere change of identity exemption to the extent of the interest the beneficiary held in
Petitioner immediately prior to the liquidation.
With respect to issue "2", pursuant to Section 590.43(b) of the Gains Tax Regulations and
Kim Poy Lee, et al., supra, the consideration received from the subsequent sale of lots by the
children and their spouses must be aggregated since the relationship between them indicates that the
transferors are not separate and distinct as to each lot or each other. However, since the husband and
wife have no beneficial interest in the lots owned by the children and their spouses and will not have
control over the children and their spouses as to the use or future transfer of such lots, the
consideration received by the husband and wife for the sale of their lots is not required to be
aggregated with the consideration received by the children and their spouses from the sale of their
lots. It is noted that pursuant to Sections 590.43(b) and 590.43(g) of the Gains Tax Regulations, the
consideration received by the husband and wife from the sale of their lots is also required to be
aggregated for purposes of determining the gain tax implications for their sales, unless the lots are
improved with residences and transferred to transferees for use as their residences.

DATED: June 15, 1993

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

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