I'm the fee owner and ground tenant of an office building. To help a tenant (Donaldson, Lufkin & Jenrette) get NYC Industrial Development Agency economic-development benefits, I'm converting the building to condominium units and conveying title to the IDA-benefited units to the IDA for nominal consideration, then leasing them back from the IDA under a 22-year 'Overlease.' I'll keep all the rent, insurance and condemnation proceeds, income-tax ownership treatment, and the right to sell, mortgage, or transfer the units; title reverts to me automatically in 2016 or whenever the tenant's IDA benefits end. Are the conveyance to the IDA, the eventual reversion, and the various leases subject to New York's Real Estate Transfer Tax or Real Property Transfer Gains Tax?

Plain-English summary

Stanley Stahl, doing business as Stahl Park Avenue Co. ("Stahl"), was the fee owner and ground tenant of the office building at 277 Park Avenue in Manhattan. To help tenant Donaldson, Lufkin & Jenrette, Inc. ("DLJ") receive economic-development benefits from the New York City Industrial Development Agency (the "IDA") -- benefits designed to reduce DLJ's operating costs and help finance equipment and leasehold improvements -- Stahl converted the building into an 18-unit condominium regime, with 17 units (all of DLJ's occupied floors, the "DLJ Space") and one remaining "Stahl Unit."

The structure. Because IDA benefits require the IDA to hold a proprietary interest in the benefited property, Stahl conveyed title to all or a portion of the DLJ Space (the "IDA Unit") to the IDA for zero or nominal consideration. Title would automatically revert to Stahl on March 31, 2016 (also the Overlease's expiration date) or earlier, whenever DLJ's benefits or related leases/subleases terminated. Immediately after the conveyance, the IDA triple-net-leased the IDA Unit back to Stahl under an "Overlease" running about 22 years. Although the IDA held record title, the Overlease made clear -- and both parties intended -- that Stahl remained the beneficial owner, bearing all burdens of ownership: the IDA had no obligation to improve, repair, or maintain the unit, and Stahl indemnified the IDA for related liabilities. The IDA affirmatively disclaimed any beneficial interest, condemnation award rights, or insurance proceeds -- all of which belonged solely to Stahl. Stahl retained free transferability of its interest (subject to certain notice and eligibility conditions) and the right to mortgage its leasehold, while the IDA could not sell, assign, or encumber its own title without Stahl's consent. The condominium's own Declaration deemed Stahl -- not the IDA -- the "Unit Owner" for all purposes, responsible for common charges and entitled to make alterations.

The tenant layer. Stahl separately subleased the IDA Unit to DLJ under a "Prime Lease" for about 22 years. Until a unit became a tax-exempt IDA Unit, DLJ paid ordinary real estate taxes; afterward, DLJ made "payments in lieu of taxes" (PILOT payments) to the IDA instead. Stahl agreed to backstop any PILOT shortfalls DLJ failed to pay, securing that backstop obligation with a mortgage on its own leasehold interest (the "PILOT Mortgage") -- while retaining a right of reimbursement from DLJ for any PILOT payments Stahl actually had to make. DLJ's own Prime Lease expressly acknowledged Stahl as the beneficial and economic owner-landlord. A further layer of sub-subleases between DLJ and the IDA (and back to DLJ) facilitated the IDA's financing of DLJ's equipment and leasehold improvements, without disturbing this beneficial-ownership analysis. Throughout, Stahl claimed ownership of the IDA Unit for federal, state, and local income tax purposes.

Why everything was exempt. The transfer tax and gains tax regulations specifically address IDA transactions (20 NYCRR 575.11 and 590.68(a)): a conveyance to an IDA by the actual beneficiary of the financing, in connection with receiving that financing, is exempt, and so is the IDA's later reconveyance back to that beneficiary. The Department had already extended this same beneficial-ownership-retention analysis to non-beneficiary property owners (like Stahl, who wasn't himself the beneficiary of DLJ's IDA financing) in two earlier rulings involving similar condo-to-IDA transfers: The Chase Manhattan Bank, N.A., TSB-A-93(1.1)-R, and Resnick Water St. Development Co., TSB-A-93(2)-R. Applying that same reasoning, the Department held that because Stahl retained all the real benefits and burdens of ownership of the IDA Unit throughout, none of the following triggered the transfer tax or gains tax: the initial conveyance to the IDA, the eventual reversion back to Stahl, the creation or termination of the Overlease, or the creation of the Prime Lease (a lease of under 49 years with no purchase option, independently exempt on its own terms).

What this means for you

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

This ruling -- an early instance of what became the Department's standard analysis for these transactions -- confirms that conveying 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 the property owner retains 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.

Property owners backstopping a tenant's PILOT (payment-in-lieu-of-tax) obligations

Structuring a PILOT-shortfall guarantee, secured by a mortgage on the owner's own leasehold interest (rather than the IDA's title), keeps that financial-backstop arrangement consistent with the owner retaining beneficial ownership -- worth noting as a template for similar guarantee structures.

IDA transaction structuring (developers, bond counsel, economic development corporations)

This is one of the Department's earliest published applications of the "retains all benefits and burdens" doctrine to a fee owner who is not itself the beneficiary of the IDA financing -- a foundational precedent cited repeatedly in later rulings addressing similar structures (see, e.g., Metropolitan Life Insurance Company, TSB-A-96(12)R).

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: I'm not the actual beneficiary of the IDA's tax benefits -- my tenant is. Does that change the analysis?
A: Not on facts like these. Even though the regulations' cleanest exemption technically covers conveyances by the financing beneficiary itself, 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: What happens when the IDA later reconveys title back to me?
A: If you remained the beneficial owner the whole time, the reversion or reconveyance likewise isn't a taxable conveyance, because there's still no change in beneficial ownership.

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)
• Sections 1441, 1443.1 of the Tax Law; 20 NYCRR 590.1 (gains tax on transfers of $1 million+; repealed 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

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a95_5r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (5)R
Real Property Tax
Mortgage Recording Taxes
June 26, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M950216A

On February 16, 1995, a Petition for Advisory Opinion was received from Stanley Stahl, c/o
Stahl Park Ave., 247 Park Avenue, New York, NY 10172.
The issues raised by Petitioner, Stanley Stahl, are:
1.

Whether Petitioner will be subject to the Real Estate Transfer Tax
(hereinafter the "transfer tax") and the Real Property Transfer Gains Tax
(hereinafter the "gains tax") upon the conveyance of title to a condominium
unit or units by Petitioner to the New York City Industrial Development
Agency (the "IDA").

2.

Whether Petitioner will be subject to the transfer tax and the gains tax upon
the reversion or reconveyance of an IDA unit or units to Petitioner.

3.

Whether Petitioner will be subject to the transfer tax and the gains tax upon
the creation or termination of the 0verlease or, creation of the Prime Lease
or, the addition or deletion of the additional Units in the IDA Unit under either
lease.

Petitioner, d/b/a Stahl Park Avenue Co. (hereinafter "Stahl"), is currently the fee owner and
ground tenant of the premises known as 277 Park Avenue (the "Building"), in the Borough of
Manhattan, block #1302, lot #1 (to be known as lots 1001-1018 upon formation of the
condominiums described herein).
Stahl has been advised, pursuant to a resolution adopted by IDA on August 9, 1994, that
certain economic development benefits were authorized in order to induce Donaldson, Lufkin &
Jenrette, Inc. ("DLJ") 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 DLJ to reduce its costs
of operating and maintaining its City offices. Moreover, the IDA will help finance the cost of
equipment and leasehold improvements. DLJ will enter into various agreements with the IDA to
facilitate the transactions.
In order to convey the economic development benefits, the IDA must have a proprietary
interest in the property being benefitted. Thus, the Building will be converted to a condominium
regime of ownership comprising eighteen condominium units (the "Units"). Seventeen condominium
units, comprising seventeen floors of the Building, will be occupied by DLJ (the "DLJ" Space). The
remaining space in the Building will be allocated to a separate condominium unit (the "Stahl Unit").

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Stahl will convey title to all or a portion of the DLJ Space in Unit increments to the IDA (the portion
of the DLJ Space conveyed is hereinafter referred to as the "IDA Unit").
The title to the IDA Unit will revert back to Stahl on March 31, 2016, which date is also the
expiration date of the 0verlease. Moreover, title to the IDA Unit will also automatically revert back
to Stahl when the benefits being afforded to DLJ, or any of the leases or subleases entered into with
DLJ, terminate.
The purchase price for the IDA Unit will be zero or a nominal amount. Immediately
following the conveyance by Stahl to the IDA, the IDA will triple net lease the IDA Unit back to
Stahl pursuant to the Overlease. The term of the Overlease will be approximately 22 years.
While the IDA holds record title to the IDA Unit, the Overlease provides, and the parties to
the transaction intend, that Stahl will be the beneficial owner of the IDA Unit and will bear all the
burdens of ownership thereof. The Overlease further relieves the IDA from any obligations to
improve, replace, service, repair or maintain any portion of the IDA Unit. Moreover, Stahl will agree
to indemnify the IDA, its directors, officers and employees of any liabilities arising from the
operation of the IDA Unit. The Overlease further provides that Stahl, as the beneficial owner of the
IDA Unit, will have the right in its own name to apply to governmental agencies in matters
concerning the IDA Unit and to initiate contests regarding legal requirements of the IDA Unit.
The IDA affirmatively agrees in the Overlease that it will not have any beneficial interest in
the IDA Unit and therefore no interest in any condemnation awards as to the IDA Unit or any
proceeds from insurance maintained by Stahl or DLJ. As between the IDA and Stahl, all
condemnation awards or insurance proceeds will be the sole property of Stahl.
Stahl retains free transferability of the IDA Unit. Stahl may assign or transfer its interest in
the Overlease, subject to then existing tenancies and subtenancies, provided that (1) Stahl transfers
all its interests in the IDA Unit, including any reversionary interests; (2) notice is given to the IDA
of the assignment and transfer and the identity and 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. Stahl may also mortgage its interest in the Overlease and its reversionary interest. At Stahl's
request, the IDA will subject its title to the IDA Units to any such mortgage, subject to certain
restrictions, such as limitations on the mortgagee's ability to foreclose against the IDA's title.
The IDA will not have the right to sell, assign, convey, lease, or otherwise encumber its title
to the IDA Unit without Stahl's consent. Any attempt by the IDA to dispose of the IDA Unit without
Stahl's consent will be void.
Petitioner represents that pursuant to the Declaration of Condominium filed in connection
with the conversion of the Building to a condominium regime defines "Unit Owner" as "the Person
or Persons owning the simple interest in the Unit; provided, however, that the person holding both

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the Future Estate and being the IDA Unit Overlessee shall for all purposes hereof, and the IDA shall
not for any purposes whatsoever, be deemed to be the Unit Owner of the IDA Unit." Therefore, Stahl
will be the "owner" of the IDA Unit for all purposes of the Declaration and Condominium's by-laws,
and, as such, Stahl will be responsible for paying monthly common charges and any other expenses
assessed against condominium unit owners. Stahl will also have the right to make any alterations,
additions, installations, improvements and substitutions to the IDA Unit, provided that any changes
meet all laws.
The parties to the transaction have executed a waiver pursuant to Section 339-r of the Real
Property Law and, therefore, the IDA Unit will be transferred subject to an existing mortgage on the
Building. The exiting mortgage will continue to encumber Stahl's fee title to the condominium units
in the Building not conveyed to the IDA, Stahl's interest as lessee under the 0verlease and Stahl's
reversionary interest in the IDA Units. The IDA will have no obligation to make payments on the
mortgage and the Mortgagee's ability to foreclose against the IDA's title will be limited.
Immediately following the Stahl-IDA sale-leaseback transaction, Stahl and DLJ will enter
into an agreement (the "Prime Lease") to sublease to DLJ the IDA Unit for an initial term of
approximately 22 years. Under the Prime Lease, DLJ's rent payments will include a portion of the
Building's operating expenses and taxes. If and until such time that a Unit subject to the Prime Lease
becomes an IDA Unit, DLJ will pay the real estate property taxes attributable to that Unit.
Thereafter, DLJ will make payments in lieu of real estate taxes under a separate agreement with the
IDA ("PILOT payments").
A separate agreement with IDA provides that Stahl will make certain payments in the event
that DLJ fails to make PILOT payments. As security for this obligation, Stahl will grant a mortgage
on Stahl's leasehold estate in the IDA Units to the IDA (the "PILOT Mortgage"). Stahl has
represented that it is entitled to reimbursement from DL3 for any PILOT payments made by Stahl
for the IDA Unit. In the Prime Lease DLJ acknowledges that Stahl is the holder of the beneficial and
economic interest as the landlord under the Prime Lease.
Stahl has been informed and the recital to the Overlease states that DLJ will sub-sublease the
IDA Unit to the IDA, and the IDA will, in turn, sub-sub-sublease the IDA Unit back to DLJ. The
sublease-leaseback between IDA and DLJ is necessary for the IDA to provide financing to DL3 for
improvements to the IDA Unit and the acquisition of equipment. The Overlease further states that
the IDA is deemed not to have assumed, or be responsible for, any obligations of DL3 under the
Prime Lease.
Stahl also represents that it will claim to be the owner of an IDA Unit for federal, state and
local income tax purposes for as long as it holds a leasehold position under the 0verlease and a
reversionary interest in the unit.

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In accordance with Section 1402 of the Tax Law, a transfer tax is imposed 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.
Section 575.7 of the Transfer Tax Regulations provides as follows:
Section 575.7 Leases and subleases. [Tax Law, §§ 1401(d), (e), (f)] (a)
Creation of a taxable lease or sublease not coupled with an option to purchase. The
creation of a lease or sublease is a conveyance subject to tax 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 lessee 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. For purposes of determining
whether a lease or sublease is for substantially all of the premises constituting the real
property, premises shall include, but not be limited to the following:
(i) an individual building, except for space which constitutes an individual
condominium or cooperative unit;
(ii) an individual condominium or cooperative unit; or
(iii) where a lease or sublease is of vacant land only, any portion of such
vacant land.
Section 575.9 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;
Section 575.11 of the Transfer Tax Regulations provides, in part, as follows:
575.11 Examples of taxable and nontaxable conveyances. (a) The following
are examples of conveyances which are subject to real estate transfer tax.

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*

*

*

(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.
(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.
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 590.5 of the Gains Tax Regulations provides as follows:
590.5 Lease/sublease as a transfer of real property. [Tax Law, § 1440(7)]
(a) Question: Is the creation of a leasehold or sublease a
transfer of real property?
Answer: Yes. The creation of a leasehold 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

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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. (See section 590.57 of this Part, relating to an
assignment of a lease.) For the purpose of determining whether a
lease or sublease is for substantially all of the premises constituting
the real property, premises shall include, but not be limited to the
following:
(i) an individual building, except for space
which constitutes an individual condominium or
cooperative unit;
(ii) an individual condominium or cooperative
unit; or
(iii) where a lease or sublease is of vacant
land only, any portion of such vacant land.
(b) Question: Is the creation of a leasehold
for a term of less than 49 years ever taxable?
Answer: Yes. If 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 as follows:
(a) Question: How are transfers of interests in
real property to and from an industrial development
agency (IDA) treated for purposes of the gains tax?
Answer: Where 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

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purposes until the company transfers and 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.
In The Chase Manhattan Bank, N.A., Adv Op Comm T&F, February 8, 1993, TSB-A­
93(1.1)-R, the Commissioner 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. Moreover,
the Commissioner 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. The Commissioner further advised that the creation of certain leases and leasebacks
between IDA and the petitioner and the petitioner and the bond financing recipient were not subject
to the gains tax and the transfer tax.
In Resnick Water St. Development Co., Adv Op Comm T&F, January 12, 1993, TSB-A­
93(2)-R the Commissioner 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. Moreover,
the Commissioner 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. The Commissioner further advised that the creation of certain leases and ieasebacks
between IDA and the petitioner and the petitioner and the bond financing recipient were not subject
to the gains tax and the transfer tax.
With respect to issue "1", the focus of Section 590.68(a) of the Gains Tax Regulations and
Section 575.11 of the Transfer Tax Regulations is to exclude from the gains tax and transfer tax the
transfer of title to real property to an IDA for the purpose of obtaining IDA financing, where the
grantor remains the beneficial owner of the property. Moreover, pursuant to The Chase Manhattan

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Bank, N.A., supra, and Resnick Water St. Development Co., supra, the 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 the instant case, while Petitioner is not the beneficiary of the IDA
financing, the transfer of the condominium unit or units to the IDA will not result in a change in
beneficial ownership since Petitioner retains all the benefits and burdens of ownership of the IDA
unit or units. Accordingly, in keeping with the intent of Section 590.68(a) of the Gains Tax
Regulations and Section 575.11 of the Transfer Tax Regulations, and pursuant to The Chase
Manhattan Bank, N.A., supra, and Resnick Water St. Development, supra, the transfer of title to the
condominium unit or units to the IDA will not be subject to gains tax or transfer tax.
Concerning issue "2", pursuant to Section 590.68(a) of the Gains Tax Regulations and
Section 575.11 of the Transfer Tax Regulations, The Chase Manhattan Bank, N.A., supra, and
Resnick Water St. Development Co., supra, since Petitioner remains the beneficial owner of the
condominium unit or units, the reversion or reconveyance of an IDA unit or units to Petitioner will
not result in a change in beneficial interest. Therefore, the reversion or reconveyance of an IDA unit
or units to Petitioner will not be subject to gains tax or transfer tax.
As for issue "3", pursuant to Section 590.68(a) of the Gains Tax Regulations and Section
575.11 of the Transfer Tax Regulations the leaseback of property by an IDA to the beneficiary of the
IDA financing, is not subject to gains tax and transfer tax, respectively, since the beneficiary of the
IDA financing remains the beneficial owner of the property. In the instant case, while Petitioner is
not the beneficiary of the IDA financing, Petitioner is the beneficial owner of the property.
Therefore, in keeping with the intent of Section 590.68(a) of the Gains Tax Regulations and Section
575.11 of the Transfer Tax Regulations, and The Chase Manhattan Bank, N.A., supra, and Resnick
Water St. Development Co., supra, the creation or termination of the Overlease, whether in
connection with the addition or deletion of additional Units in the IDA Unit, will not be subject to
gains tax or transfer tax.
In addition, pursuant to Section 590.5 of the Gains Tax Regulations and Section 575.7 of the
Transfer Tax Regulations the creation of a lease for a term of less than 49 years, including renewal
periods and not coupled with an option to purchase is not subject to gains tax and transfer tax
respectively. Accordingly, since the creation of the Prime Lease, in connection with the

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addition or deletion of additional Units in the IDA Units will be for a term of less than 49 years,
including renewal periods and contains no options to purchase, the creation of the Prime Lease will
not be subject to gains tax and transfer tax.

DATED: June 26, 1995

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

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