Tax Type
Recordation Tax
Description
Property Deeds;Conveyances to Corporations under I. R. C. §351;State Recordation Tax Exemption
Topic
Documents Subject to Tax
Date Issued
09-30-1977
This Opinion is in response to your inquiry which requests guidance in ascertaining whether a certain deed which purports, on its face, to convey real property pursuant to §351 of the Internal Revenue Code of 1954, should be accorded an exemption from state recordation tax pursuant to §58-64 of the Code of Virginia (1950), as amended.
Section 58-64 states that the recordation taxes imposed by §§'58-54 and 58-55 shall not be imposed "for admitting to record any deed conveying real estate to a corporation upon its organization by persons in control of the corporation in a transaction which qualifies for nonrecognition of gain or loss pursuant to § 351 of the Internal Revenue Code of 1954, as it exists at the time of the conveyance.' (Emphasis added.)
The above-quoted portion of §58-64 sets out a three pronged test for a conveyance to be exempt from state recordation tax. First, the deed must convey real estate to a corporation upon the corporation's organization. The conveyance must thus be made within a period of time sufficiently close to the inception of the corporation so that it can be reasonably ascertained that the conveyance is an integral part of the formation of the corporation. Second, the transferor(s) must be in "control' of the transferee corporation immediately after the transfer. The transferor(s) must own: (a) at least 80 percent of the total combined voting power of all classes of stock entitled to vote, and (b) at least 80 percent of the total number of shares of all other classes of stock of the corporation. See §'368(c), Internal Revenue Code of 1954, hereinafter, IRC. (Emphasis added.) Third, the transaction must qualify in all other respects with §'351 IRC as it exists at the time of the conveyance. The main requirement here is that the transferor(s) convey(s) the real estate solely in exchange for stock or long-term securities (generally obligations of ten years or more) of the transferee corporation. See §'351(a), IRC. (1954). (Emphasis added.) See also Campbell v. Carter Foundation Production Co., 322 F. 2d 827, 12 AFTR 2d 5659 (5th Cir. 1963); Baker Commodities, Inc., 48 T. C. 374 (1967); George A. Nye, 50 T. C. 203 (1968), and cases cited therein, illustrating the "securities' classification.
The deed in question recites that the conveyance of real estate is made by "the sole shareholder' to the corporation which is variously described in the deed as "newly organized' and "recently organized,' for the "sum of One Dollar ($1.00) cash in hand paid and other good and valuable consideration' "pursuant to § 351 of the Internal Revenue Code of 1954."
Applying the test outlined above and based upon the facts presented, it is my opinion that the recitations in the deed are sufficiently vague as to the following matters:
(a) the date of organization of the corporation in relation to the date of the conveyance, and
(b) whether consideration other than stock or long-term securities passed in exchange for the conveyance of the real estate.
Further inquiry of the party submitting the deed for recordation is thus required before an exemption under § 58-64 should be allowed.
In this instance, since the transferor is the sole shareholder of the transferee corporation, the matter of "control' is not in issue.
If, after making proper inquiry, you are satisfied that the transaction in question meets the other requirements of the test outlined above, the deed may be admitted to record pursuant to § 58-64.
Attorney General's Opinion