Laws, Regulations & Annotations

Property Taxes Law Guide – Revision 2018

Property Tax Annotations

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Annotation 220.0674

220.0674 Step Transaction. Two separate family trusts, S Trust and J Trust, are each 50 percent partners in a partnership which owns real property. Upon the death of one of the trustees, S Trust's interest in the partnership was transferred to two trusts: Trust A and Trust B. The surviving spouse is the trustee and beneficiary of both trusts. Subsequently, the partnership was required to convey the property out of the partnership to obtain financing. The real property was transferred to the J Trust and Trusts A and B as tenants in common in the same proportional interests. Now Trusts A and B are considering purchasing the interest owned by the J Trust.

The step transaction doctrine allows an assessor to disregard for tax purposes a series of steps utilized to effect the transfer of real property when the facts suggest that the transfer might have been accomplished in fewer steps and that the purpose for using a series of steps was to avoid a change in ownership. If the facts indicate that the transfer out of the partnership was motivated solely by the lender's requirement for the purpose of obtaining a loan against the property and not some other reason, then the step transaction should not be applied. C 3/9/2006.