If you have tried to record anything in California recently (e.g. a deed on that stone house you recently purchased), you have no doubt run across the requirement that almost everything that crosses the desk at your county’s office of the Recorder must be accompanied by a Preliminary Change of Ownership Report (PCOR). The name implies this report is intended to accompany changes in ownership. In my experience, the Recorder’s offices require these reports for pretty much everything regardless of whether an actual change of ownership actually takes place. The only exception to this that jumps out in my mind is recording a court order.
While I have had documents rejected by the Recorder’s office for intentionally not including a PCOR or for typos in the PCOR, I have not had the experience where I was able to record a document without submitting a PCOR. The San Francisco Recorder’s office is very vigilant on this point, as are the other Bay Area counties. The PCOR instructions indicate you can pay an extra $20 to avoid filing the PCOR with the Recorder’s office. I’ve always wondered about this option but never had much need to dig into its repercussions as it has become our standard practice to include a PCOR with any deeds or affidavits submitted to the Recorder’s office.
It appears that electing the $20 non-submission options can lead to exposure to a $2,500 penalty for residential property owners and a $10,000 penalty for commercial property owners. If you neglect to submit the PCOR to the Assessor at a later date for any reason, the county would be in a position to generate a good deal of revenue. Presumably, this is intended to deter people who may be trying to avoid a potentially costly reassessment under Prop 13. Our position is that tax evasion is a terrible idea, but we are happy to help people who have been caught in the act!
Anyway, the news here is that California is looking into increasing these penalty numbers from $2,500 and $10,000 to $5,000 and $20,000, respectively. See the press release from April 27, 2011, below. One might consider these numbers small in comparison to the savings achieved by avoiding reassessment, but keep in mind that these penalties would be lumped on top of all other liabilities incurred and accrued for the period of avoided tax. Call me conservative, but the risk far outweighs the savings.
For Immediate ReleaseDate: April 27, 2011
Contact: Angela D’Anna (415) 554-7434
*** PRESS RELEASE***
Assessor-Recorder Ting Seeks Tax Loophole Closedfor Change in Ownership Statements
Outdated Law Unchanged Since 1981,
Bill Creates Tougher Penalties for Tax Evaders
San Francisco, CA – Testifying today before the Senate Governance and Finance Committee in Sacramento, Assessor-Recorder Phil Ting is calling for an increase in the cap on penalties for property owners that fail to file a Change in Ownership Statement – a measure that will bring greater efficiency to tax collection and close tax loopholes.
California law requires a Change in Ownership Statement to be filed with the Assessor-Recorder’s office when there is a sale or transfer of real estate.
Ting wants to update the current law to stop property owners that evade the law and do not pay their taxes. Penalties for failure to file a Change of Ownership Statement have not been updatedsince 1981. The sanctions being sought by Ting are consistent with current market rates.
Under the proposed legislation – Senate Bill 507 authored by State Senator Mark DeSaulnier (D– Concord) – the penalty cap for residential property owners who fail to file a Change of Ownership Statement will increase from $2,500 to $5,000. The cap on penalties for commercial property owners will go from $10,000 to $20,000.
“The law has not been updated for nearly 30 years. By today’s standards, the penalties for not filing a Change in Ownership Statement barely amount to a slap on the wrist,” says Ting. “This legislation is necessary to maintain fair and equitable standards for all taxpayers in California. Taxpayers who follow the law should not have to
shoulder the burden for those who take advantage of this loophole.”
SB 507 also specifies to whom and where notices of failure to file will be sent, as well as extends the notice period from 45 days to 90 – giving taxpayers more time and opportunity to comply.
For the past year, the San Francisco Assessor-Recorder’s office has been working on this measure to strengthen penalties and procedures for property owners failing to file a Change of Ownership Statement. Senate Bill 507 not only has the unanimous support of the California Assessor’s Association, but also the endorsement of the California Tax Reform Association and the California State Association of Counties.