PS 93(5)

Real Estate Conveyance Tax Implications for Conversions of Partnerships to Limited Liability Companies

This publication has been superseded by PS 93(5.1)

PURPOSE: The purpose of this Policy Statement is to explain the treatment of a deed, instrument or writing from a partnership to a limited liability company that is considered to be a continuation thereof.

BACKGROUND: The Connecticut Limited Liability Act; 1993 Conn. Pub. Acts 267; was enacted into law on June 23, 1993. The Limited Liability Act permits the formation in Connecticut of unincorporated associations that bear the corporation law characteristic of limited liability for all investors, with the possibility of being treated as partnerships for purposes of federal and state tax law. Passage of the act may lead partnerships to convert to limited liability companies. When a partnership that owns Connecticut real property converts to a limited liability company, a new deed may be recorded to reflect the proper ownership of the real property.

STATUTORY AUTHORITY: 1993 Conn. Pub. Acts 267 and Conn. Gen. Stat. section 12-494, et seq.

EFFECTIVE DATE: Effective upon issuance and applicable to all open periods.

REAL ESTATE CONVEYANCE TAX: Conn. Gen. Stat. section 12-494(a) imposes the real estate conveyance tax on "each deed, instrument or writing, whereby any lands, tenements or other realty is granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, when the consideration for the interest or property conveyed equals or exceeds two thousand dollars..."

REAL ESTATE CONVEYANCE TAX IMPLICATIONS FOR CONVERSIONS OF GENERAL PARTNERSHIPS TO LIMITED PARTNERSHIPS: Where a general partnership that owned real property converted to a limited partnership, Ruling No. 91-3 held that where:

That ruling relied on the provisions of 26 C.F.R. section 47.4383-1, a regulation promulgated under the federal Documentary Stamp Tax, on which the real estate conveyance tax is modeled. (See 1989 Conn. Op. Atty. Gen. 89-020.) That regulation provides in part:

No tax shall be imposed under section ... 4361 by reason of any transfer of an interest in a partnership holding ... realty if such partnership (or another partnership) is considered to be a continuing partnership within the meaning of section 708 and if such ... realty [continues] to be held, regardless of the name in which held, by the continuing partnership (or continuing partnerships if more than one). For rules relating to continuations of partnerships, see section 708 and the regulations thereunder ...

As explained in Ruling No. 91-3, under 26 U.S.C. section 708 a partnership is considered to be continuing if it is not terminated. A partnership is terminated if (1) no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership or (2) within a 12-month period there is a sale or exchange of 50 percent or more of the total interest in partnership capital and profits. Under 26 C.F.R. section 1.708-1(b)(1)(ii), a contribution of property to a partnership does not constitute a sale or exchange for purposes of 26 U.S.C. section 708. Ruling No. 91-3.

Ruling No. 91-3 also relied upon Rev. Rul. 84-52, 1984-1 C.B. 157, which considered the federal income tax consequences of the conversion of a general partnership into a limited partnership interest in the same partnership. Rev. Rul. 84-52 held that where partners amended the partnership agreement to convert a general partnership into a limited partnership under a statute corresponding in all material respects to the Uniform Limited Partnership Act and where each partner's percentage interest in the partnership's profits, losses and capital remained the same upon conversion, the partnership was considered to be continuing as long as the business of the general partnership continued to be carried on after the conversion by the limited partnership. Ruling No. 91-3 (citing Rev. Rul. 84-52).

APPLICATION OF RULING NO. 91-3 TO CONVERSIONS OF PARTNERSHIPS TO LIMITED LIABILITY COMPANIES: The Internal Revenue Service has addressed partnership continuity upon the conversion of a partnership to a limited liability company in a number of Private Letter Rulings. See, e.g., PLR 9321047; PLR 9226035; PLR 9210019; PLR 9119029; and PLR 9010027. Those Private Letter Rulings determined that the conversion of the partnership at issue to a limited liability company was "directly analogous to the situation in Rev. Rul. 84-52." PLR 9226035; PLR 93211047. Therefore, those Private Letter Rulings also held that where, after the conversion, each partner's total percent interest in the partnership's profits, losses, and capital will remain the same and the business of the partnership will continue to be carried on, the partnership will not be terminated under 26 U.S.C. section 708.

The Department will apply the criteria of Rev. Rul. 84-52 to conversions of partnerships to limited liability companies. Accordingly, where a general or limited partnership converts to a limited liability company, the limited liability company will be considered to be a continuing partnership within the meaning of 26 U.S.C. section 708, and any deed that is recorded to reflect the proper ownership of the real property (with the partnership as the grantor and the limited liability company as the grantee) will not be subject to real estate conveyance taxes.

EFFECT ON OTHER DOCUMENTS: None.

EFFECT OF THIS DOCUMENT: A Policy Statement is a document that explains in depth a current department policy or practice affecting the liability of taxpayers. Unlike a Letter Ruling, a Policy Statement does not apply a policy or practice to a specific set of facts but it may be referred to for general guidance by taxpayers. Unlike a Special Notice, it does not announce a new policy or practice in response to changes in state or federal laws or regulations or to judicial decisions. 

PS 93(5)
Real Estate Conveyance Tax
Issued: 12/27/93