Late Filing for Claim for Parent-Child Exclusion
If you or your clients miss the filing date for filing a claim for exclusion from "change in ownership" (triggering property tax reassessment) for either the parent-child exclusion or the grandparent-grandchild exclusion, effective January 1, 1998, you can now file a claim even thought it is late. (Penner v. Santa Barbara still would not be helped by this new law, as the applicant does have to otherwise be eligible for the exclusion.)
The parent-child exclusion is available for a change in ownership occurring after November 5, 1986, and the grandparent-grandchild exclusion is available after March 26, 1996. The usual period for filing the claim is (1) within three years after the date of transfer (change in ownership), or (2) within six months after the mailing of a notice of supplemental or escape assessment, whichever is later, and (3) prior to any transfer to a third party. The new law (SB 542, Ch. 941) allows a late claim to be filed if the property has not been transferred to a third party.
When a late claim is filed under the new law, the exclusion is not retroactive to the date of transfer, but the exclusion will apply beginning in the taxable year (remember, that is now January 1 instead of the prior March 1) in which the claim is filed. There is no refund for the higher taxes paid in the intervening years. Additionally, the taxable value of the real property is set at the adjusted base year value of the year of the date of transfer, i.e., the base year value from the date of transfer is adjusted for inflation and for any subsequent new construction.
Clarification of Grandparent-Grandchild Exclusion
Board of Equalization Letter to Assessors No. 97/32, dated June 5, 1997, interpret this expansion of the Parent-Child Exclusion approved by the voters on March 26, 1996, and addresses questions which have arisen since then.
The essence of this claim was to allow a grandparent to transfer property to a child and benefit from the exclusion from reassessment where both parents of the children were deceased. But this simple statement has to be qualified to be accurate. Actually, it is where all of the parents of the grandchild, which parents qualify as children of the grandparents, are deceased as of the date of the transfer. Thus, where there has been a divorce, or any remarriage, the eligibility gets very complicated. Board of Equalization Letter to Assessors No. 97/32, dated June 5, 1997, address this issue that is far too complex to print here, but worth analyzing if you encounter this situation.
The Letter addresses other issues as well. Unlike the Parent-Child Exclusion which is available for transfers from parents to children, or from children to parents, the new grandparent-grandchild exclusion is available only one way, from the grandparent to the grandchild.
Additionally, the parent-child exclusion is for the principal residence plus a maximum of $1,000,000 of other real property per parent, per child. The grandparent-grandchild exclusion is not in addition to this amount, such that if the parent had previously used a portion of this amount, the grandparent may only transfer the unused portion (not an additional residence and additional $1,000,000 in other property). However, if a principal residence had been transferred by a parent to a child, and after the parents' deaths (or "parent's death" in a divorce situation) a grandparent transfers a residence, the value may be applied against the $1,000,000 amount for other real property.
Over 55 Transfer of Base Year Value
The transfer of base year value for persons over 55 years of age had been set to expire on December 31, 1998, but two separate pieces of legislation (SB 542, AB 240) continued this provision permanently into the future. Interesting comment from the Senate Revenue & Taxation Committee Analysis, "Indeed, some would argue that although the Constitution merely authorizes the Legislature to grant this benefit, it is effectively ‘mandated' since the people voted overwhelmingly in favor of the provision."
Additionally, Revenue & Taxation Code §69.5 had defined "residence" as an "area of reasonable size that is used as a site for a residence," and new legislation effective January 1, 1998, expands this definition to include all the land if any nonresidential uses of the property are only incidental to the residential use (SB 1105, Ch. 940).
Disaster Transfer of Base Year Value
There is currently a three-year period for transferring the base year value of property damaged or destroyed by a disaster to comparable property or a newly-constructed replacement. Because of the extent of the Northridge earthquake, an exception for Northridge has been made to extend the period to five years (SB 594, Ch. 353).
Appraisal Reports
The following new statute means that no longer can homeowners take a letter expressing a realtor's opinion of value of property to an Assessment Appeals Board hearing and treat it as an appraisal. New Revenue & Taxation Code section 80.1 provides that a person may not prepare an opinion of value for a real property owner for compensation where the opinion is intended for submission in an appeal for residential property of $1,000,000 or under, unless the opinion is designated as either (1) an appraisal report prepared in accordance with the Uniform Standards of Professional Appraisal Practice set forth in the Business and Professions Code, or (2) an opinion of value which specifically states, "The value expressed in this opinion should not be construed as an appraisal report, which must be prepared in accordance with the Uniform Standards of Professional Appraisal Practice." The property owner, including employees of the owner, and property managers may still provide relevant information. Also, the new provision does not apply to governmental agents. (AB 1319, Ch. 182, effective January 1, 1998, to be repealed January 1, 2001.)
Application for Reduced Assessment
The usual period for filing an application for reduced assessment is between July 2 through September 15. SB 542 (Ch. 941) authorizes a county board of supervisors to adopt a resolution providing that an application for reduction in assessment may also be filed within 60 days of the mailing of the notice of the assessor's response to a request for assessment, where certain conditions are met (see new requirements in amended Revenue & Taxation Code section 1603). Additionally, each applicant's signature on a application for reduction in assessment is now to be made under penalty of perjury. (Only chaptered on October 12, 1997, it will be a little time before the counties look thoroughly at this new option.)
Also, the September 15th deadline for filing an appeal is now extended to the next following business day where September 15th falls on a Saturday, Sunday, or legal holiday (SB 542 and SB 1105).
Administrative Changes
With the prior change of the assessment year to January 1, this year's legislature has made a number of conforming changes to other time deadlines:
• The deadline for filing an affidavit required for certain exemptions (such as qualified property held by cemeteries, educational institutions, homeowners, nonprofit organizations, religious organizations, and veterans, and for certain aircraft) is now changed to February 15 (formerly the dates were variously March 15, March 31, or April 15). The deadline for filing the annual affidavit for documented vessel is now February 1 (formerly April 1). (SB 542, Ch. 941.)
• The tax collector may now waive penalties where it is clear the taxpayer has not received a bill for unsecured taxes. Additionally, the tax collector may now recover actual costs where taxpayers wish to initiate a four-year payment plan on escaped assessment tax bills. (SB 1007, Ch. 546.)
Miscellaneous Legislation
• Life insurance companies which own real property in a separate account are required to file property statements. SB 76 (Ch. 94) now requires each county assessor to compile by July 1, 1998, a list of life insurance companies which have filed property statements, and this list is to be public record.
• Non-profit organizations may currently object to the sale of residential or vacant real property that has been deeded to the state, or may purchase property which has been tax defaulted for five years or more. SB 219 (Ch. 477) expands the uses the non-profit organization may have with respect to these properties: to rehabilitate, rent to, or use the property to serve low-income persons; to construct residential dwellings on and sell to low-income persons; or to dedicate the property to public use for these same purposes.
Changes in Board of Equalization Rules
The Board's Property Tax Rules (18 Cal. Code Regs. §462.001, et seq.) have been undergoing a major updating program, which has included substantial contribution by the Tax Section and Estate Planning, Probate, and Trust Section of the State Bar. Revisions of general interest now in place include:
• Trusts. Rules pertaining to ownership of real property by trusts were more precisely defined. As with other rules, the revisions state that a change in ownership occurs "unless otherwise excluded from change in ownership." For property tax purposes, trust beneficiaries are treated as the owner of real property held in trust. Thus, transfers of interests in legal entities into a trust does not result in a change in ownership unless a change would occur if the interests were held directly by the trust beneficiaries. (The trust itself, therefore, is not considered a separate legal entity). Examples are provided in the rules for A-B trusts, including where sprinkling powers are provided (which could trigger reassessment where otherwise excluded, depending on the trust beneficiaries). Also, the date of a change in ownership (unless otherwise excluded) is now clearly stated to be when a revocable trust becomes revocable, such as the date of death of a settlor (if the trust so provides).
• Spousal Exclusion. The spousal exclusion is now explicitly stated to apply not only to transfers of real property, but also transfers of interests in trusts or in legal entities (to the defeat of a prior Board of Equalization opinion held against all odds). Even when determining gaining of control of a legal entity, or the counting changes of cumulative ownership interests, are now explicitly included in the spousal exclusion.
• Deed Correction. Clarification that a reformation or correction of a deed where the original deed mistakenly failed to reflect the parties' true intentions is not a change in ownership (consistent with present statutory provisions).
• Life Estate. States that a change in ownership occurs when a life estate or other precedent property interest ends.
• De Minimis Exemption. Adding clarifying examples to the de minimis provisions where reassessment will not occur if transfers in one assessment year (now January 1 through December 31) cumulatively exceed 5% of the value of the total property or $10,000. Also clarifying that transfers otherwise excluded (such as with the spousal exclusion) are not counted in the de minimis count.
See the new Rule amendments
The two major revisions still under discussion (and very heavy debate) are:
• Joint Tenancy. The Board staff wants the requirement that a joint tenancy is not created unless a third party stranger is brought into the joint tenancy; those of us on the State Bar committees are saying it not required.
• Legal Entities. There are pending several very helpful changes which clarify (and sometimes, correct) the present rules. However the sticking point has to do with conversions of entities. The Board's staff wants any conversion from one entity to another to have the resulting entity treated as a separate entity, and thus trigger a change in ownership. Thus, a general partnership which converts to a limited partnership, although the same entity under state law purposes, would be a change of ownership for property tax purposes under the staff's position. Those of us on the State Bar committees have presented legal analysis stating why a conversion continues the same entity and thus there is no change in ownership.
Statute of Limitations
A recent case interpretating the four-year statute of limitations deserves note. In Sunset Retirement Villa, et al., the Third Appellate District (No. C024496) on October 27, 1997, determined that the four-year statue of limitations is inapplicable in cases involving a correction of an assessor's error in the tax roll that is not based on judgment as to value. In this case, when one partner transferred property to a partnership name, the assessor reappraised the property believing a change in ownership had occurred. Apparently the property was owned by the partnership and the deed was merely to conform legal title, which does not creat a change in ownership. The partners did not discover the situation for eight years, at which time they requested the assessor to make the correction. The assessor refused, and the appeals board also refused to hear the appeal on the basis that the appeal was barred by the four-year statute of limitations for appealing new base-year value determinations. However, the court of appeal reversed making the distinction that the four-year statute is inapplicable in cases involving a correction of an assessor's error.
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The contents of this publication are for information purposes only and are not meant nor should be construed to be legal advice. Note, also, the date of the document. Laws are constantly changing, and are subject to differing interpretations. We, therefore, urge you to do additional research or to contact your own legal or tax counsel before acting on the information contained herein.
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