Section 91.152. Confirmatory deed

(a) A deed made without consideration for the sole purpose of confirming title to real estate under a prior recorded document, including a deed that only asserts a transfer of title to real estate by operation of law as a result of an existing survivorship interest, is not taxable. This subsection only applies if the following apply:

(1) The grantee of the deed of confirmation held or holds record title to the property interest described in the deed of confirmation under a prior deed.

(2) The deed of confirmation is made solely for the purpose of making the grantee’s record legal title under the prior deed sure and unavoidable.

(3) The grantor of the deed of confirmation has no interest in the real estate conveyed or the grantor received his interest by a document that was void from inception.

(b) A deed made without consideration for the sole purpose of confirming an entity’s existing real estate ownership following a conversion of the entity is not taxable. This subsection only applies if all of the following occur:

(1) The entity holds title to the real estate at the time of the conversion as opposed to its owners. An entity does not hold title to real estate if the entity’s owners have merely made a capital contribution of the real estate to the entity without the conveyance of title to the real estate.

(2) Without the making of any document:

(i) The entity is vested with all the same property, real, personal and mixed, franchises and debts before and after the conversion.

(ii) The entity is subject to all the same obligations before and after the conversion.

(iii) Liens upon the property of the entity before the conversion are not impaired by the conversion.

(iv) Any claim existing or action or proceeding pending by or against the entity before the conversion may be prosecuted to judgment against the entity after the conversion.

(3) The entity is not required to wind up its affairs or pay its liabilities and distribute its assets either because there is no break in the continuity of its existence or because its separate existence ceases with the conversion.

(4) Considering all the ownership interests in the entity prior to the conversion, there is no change in proportionate ownership interests resulting from the conversion. Notwithstanding the provisions of § 91.154 (relating to documents involving corporations, partnerships, limited partnerships and other associations), when determining if there is a change in proportionate ownership interests, entities will not be considered to be entities separate from their members, partners, stockholders or shareholders; and when determining if there is a change in proportionate ownership interests resulting from the change to a limited partnership, the interests of the limited partners and general partners will both be considered.

(5) Title to real estate would not revert or be in any way impaired by reason of the conversion.

Example 1. A and B are equal partners in a general partnership known as AB, general partnership. One of the assets of the partnership is real estate that A and B contributed to the partnership but own in their individual names. A and B want to convert their general partnership to a limited partnership known as AB, LP. A and B set up a limited liability company (LLC) to be the 1% general partner in the limited partnership. A and B will have a 99% limited partnership interest in the limited partnership (that is, A and B each have a 49.5% limited partnership interest). In order to effectuate the conversion, A and B merge AB into AB, LP. The limited partnership is the surviving entity of the merger. The general partnership ceases to exist as a result of the merger.

By way of the merger, AB has changed its business organization form, or converted, from a general partnership to a limited partnership. AB, LP continues the same business as AB and has all the same assets and liabilities as AB. Further, ownership of the business has not changed. A and B were equal owners of AB and are equal owners of AB, LP through their equal ownership of the LLC and their equal limited partnership interests in AB, LP.

After the conversion, A and B prepare a deed for the real estate from A and B, individually, and AB, general partnership, as grantors to AB, LP as grantee. The deed is taxable because the real estate was in the name of A and B individually. Legal title was never transferred to the general partnership. Therefore, the deed effectuates a transfer of title in the real estate from A and B, individually, to AB, LP. AB, general partnership is merely joining in the deed. A document that transfers title to real estate from individuals to an entity is taxable.

Example 2. Assume the same facts as in Example 1 except that AB purchased the real estate with partnership funds and titled the real estate in the name of AB. Because the general partnership holds title to the real estate and because the deed merely confirms AB’s existing ownership of the real estate following its conversion to AB, LP, the deed is not taxable.

Example 3. Assume the same facts as in Example 2, except that instead of setting up a limited liability company (LLC) to be the general partner of AB, LP, A becomes the general partner and B becomes the limited partner. Each holds a 50% interest in the partnership’s income. Although A and B each have an equal income interest, A now has sole control over the limited partnership as its general partner and B has only an income interest as a limited partner. In the general partnership, A and B had equal management and income interests. Because there is a change in ownership interests, AB, LP is a different entity than AB. Therefore, the deed is taxable.

Example 4. X, Y and Z are equal co-partners in XYZ general partnership. XYZ general partnership owns Pennsylvania real estate. X, Y and Z desire to change the form of the general partnership to a limited liability company (LLC). X, Y and Z set up an LLC to take the place of the general partnership. X, Y and Z are equal members in the LLC. To effectuate the conversion, X, Y and Z transfer their partnership interests to the LLC. As a result, the LLC becomes the sole partner of the partnership. By law, the partnership must dissolve. As part of the dissolution, the partnership conveys all its assets, including real estate, and assigns its liabilities to the LLC, the sole partner. Because of the dissolution, the general partnership ceases to exist and the LLC survives with the same owners, assets and liabilities as the general partnership. Because of the dissolution, there has been a break in the continuity of the general partnership. Consequently, the exclusion under this subsection does not apply. Further, the document that conveyed the real estate from the general partnership to the LLC effectuated a direct transfer of real estate from the general partnership to the LLC while they both existed. Because the transfer was from an entity, XYZ general partnership, to its sole member, the LLC, the document is subject to tax under § 91.154(a) (relating to documents involving corporations, partnerships, limited partnerships and other associations), and the exclusion under § 91.193(13) (relating to excluded transactions) does not exclude the document from tax because the LLC has not owned its interest in the general partnership for more than 2 years.

The provisions of this § 91.152 adopted September 9, 1988, effective September 10, 1988, 18 Pa.B. 4096; amended December 14, 2007, effective December 15, 2007, 37 Pa.B. 6516. Immediately preceding text appears at serial page (233365).

Notation

Authority

The provisions of this § 91.152 issued under section 1107-C of the Tax Reform Code of 1971 (72 P. S. § 8107-C).

Cross References

This section cited in 61 Pa. Code § 91.164 (relating to quit claim deeds); 61 Pa. Code § 91.193 (relating to excluded transactions); and 61 Pa. Code § 91.171 (relating to transfers by operation of law).