On September 9, 2015, in Matter of the Petition of Jonis Realty/E. 29th Street LLC, the Tax Appeals Tribunal, Administrative Law Judge Division held that the three transfers made by Jonis Realty to the transferee were not subject to the New York City real property transfer tax (RPTT). Even though aggregating the three transfers constitued a transfer of the controlling interest of the entity, the judge held that the transfers were not related. ( (N.Y.C. Tax Trib.).)

In August 2005, brothers Steven and Nathan Helegua each held 46.5% interest in Jonis Realty/E 29th Street, LLC, which owned a 96% interest in 39 East 29th Street, LLC, which owned several parcels of real property in NYC. On August 5, Jonis made a transfer of 30% interest in 39 East 39th Street, LLC to the transferee. Several months later, Jonis transferred an additional 18% of its interest in 39th Street, LLC to the transferee.

At this point, the brothers did not contemplate making any furthers transfers of their interest, and the real property was beneficially owned 48% by Jonis, 48% by the transferee, and 4% by a third party. However, because of financial need, Stephen subsequently sold his entire share of Jonis to the transferee, which left the property benefically owned 70.32% by the transferee.

Jonis determined that the three transfers aggregated together constituted a transfer of a controlling interest in the beneficial owner of real property, and filed a New York City RPTT return. Stephen paid the transfer tax due out of his own funds, and filed a Claim for Refund in September 2007, claiming that the third transfer was not related to the first two, so transfer tax should not be due. The Appeals Division remanded the case to the Administrative Law Judge Division of the Tribunal.

The NYC RPTT imposes a tax on the transfer of a "controlling interest" in an entity that owns real property in New York City. With respect to a limited liability company (LLC) or partnership, a controlling interest means at least 50% of the stock, capital profits, or beneficial ownership of the entity. Separate transfers made within a three-year period are aggregated, unless the petitioner can rebut the presumption that the transfers are related.

Neither the statute nor the regulation define what constitutes a "related transaction," although the regulation provides several illustrations as examples (19 RCNY §23-02). The judge found that in this case, at the time of the second transfer, there were no plans to make any further transfers. The third transfer was:

The fact that the three transfers were from the same entity is not reason enough for them to automatically be considered related. Since the third transfer was deemed unrelated, the judge found that the transfers were not subject to the RPTT.

Entities and their counsel should take note of this case as a reminder that even if an entity makes three transfers of a controlling interest within three years, the New York City RPTT may not apply to the transaction. The transfers must be related in some way, and it is possible to successfully show that separate transfers are not related.