Tax & Accounting Blog

Taxpayers Facing More Penalities in California

Commercial Real Estate, ONESOURCE Property Tax May 4, 2011

Property owners in California began facing significant penalties as of January 1, 2010 when Senate Bill 816 (SB 816) went into effect.

Prior state law required a person or entity that had acquired ownership or control of a legal entity that owned real property in CA to file a signed 100B Form with the State Board of Equalization (BOE). There was no penalty for not filing the statement unless the BOE requested the statement from the taxpayer in writing and the taxpayer failed to file the statement within 45 days of that request. Additionally, the penalty was automatically abated if the statement was filed within 60 days of the penalty notification.

Under this new law, a person or entity that acquires ownership or control of a legal entity is required to file the 100B Form with the BOE within 45 days of the change in ownership or control. Failure to file the statement within 45 days will result in a penalty.

The penalty for failure to file within 45 days of the event or to respond timely to the BOE’s written request to file a statement applies whether or not a change in control (CIC) or change in ownership (CIO) actually occurred. The amount of the penalty is either: 1.) 10% of the taxes applicable to the new base year value of the real property owned by the legal entity, if the entity has undergone a CIC or CIO; or 2.) 10% of the current year’s taxes on the real property owned by the entity if the entity has not undergone a CIC or CIO.

The automatic abatement that was previously in place is no longer offered to taxpayers, even when the statement is filed within 60 days of the notice to file. To obtain an abatement of the penalty, the taxpayer will now have to apply to the county board of supervisors where the property is located and prove that the failure to file the statement was due to reasonable cause and not willful neglect.

The property tax team at Thomson Reuters is currently dealing with appeals on penalties assessed for failure to file a statement of CIC and Ownership of Legal Entities (Form BOE-100-B) for tax years dating back to 2004. One such client has penalties in excess of $100,000 and there was not a change in ownership in the 2004 tax year.

SB 816 strengthened the reporting requirements and penalties in order to aid assessors in the more timely discovery of legal entity ownership transfers that result in real property being subject to reassessment under existing California statutes. California County Assessors are aggressively pursuing penalties on entities that did not file replies to the BOE prior to January 1, 2010.  Lastly, the statute also allows assessors to inform the County Registrar-Recorder of the event not to mention the values involved so that office may seek to impose documentary transfer taxes (DTT) at the prevailing rates specific to the property location. 

This legislation does not apply to a typical California real property acquisition between unrelated buyers and sellers. For these typical sales transactions under Proposition 13, the purchase price will be used to establish the new base year value in most circumstances as a Change of Ownership Statement (COS) is typically filed along with the recording of the deed.  If the COS is not filed at closing it must be transmitted to the assessor within 45 days of the date of closing to avoid similar penalty provisions noted above.