'Sham' transaction: Plus: new property tax regs & cities eye collections.

• Author: Williams, Leonard W.
• Position: CA Tax

Two companies structured a real properly exchange in an attempt to result in a reassessment of only 50 percent of the property, instead of 100 percent. It didn't work as planned and their attempt to re-form the transaction "for property tax purposes only" was ineffective.

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The Appellate Court concluded that because the reformation agreement purported to apply for properly tax purposes only, it was a "sham transaction" that, was ineffective to change the terms of the original agreement. (Fashion Valley Mall, LLC v. County of San. Diego)

New Property Tax Reporting Requirement

Effective Jan. 1, 2010, California requires any entity undergoing a transaction constituting a Prop. 13 "change in ownership" to file a Board of Equalization Form 100-B, "Statement of Change in Control and Ownership of Legal Entities," within 45 days of the transaction. Failure to do so will result in a penalty of 10 percent of the annual property tax using the new assessed values. This is a change from the prior rule. See SB 816 for more details.

City Business Licenses

Cities are stretching their tentacles to collect business license fees and rely on data they get from the FTB.

One person received a 1099 from his employer for his expense allowance, and reported it on his Schedule C. That resulted in a "welcome aboard" letter from the city where he lived, accompanied by a Business Registration Form.

The lesson? Be careful how one uses and reports such 1099s.

A woman who cleans houses for a living reports her income on a Sch. C, since that's her business. She got the same type of letter. However, since she doesn't clean houses in the city where she lives, her CPA was able to get the licensing fee waived.

571-L Forms (Business Property Statement) When a Co. Moves, Dissolves

A CPA's client has locations in two California cities, but has shut down operations on one location that has $2 million worth of production equipment in the building, until the assets are sold or moved to the second location.

The CPA's question was: "How does one report, these assets on the 571-L?"

The answer is to consider reporting them in the "Other" column rather than the regular "Machinery & Equipment" column. Attach a statement that the plant is closed, the equipment is out of service and will be either sold or moved shortly to another location. If there is obsolete equipment, list that separately also.

One can request a copy of the "Extended Assessment" calculation. Then it...