This question has been the subject of a lot of hand-wringing, and several people eager to expand their reach have leapt in ineptly.
There are two tests for "what is a security". First, from a federal perspective, the answer comes from the case SEC v. W.J. Howey Co., 328 U.S. 293 (1946). An interest will be classified as a security if the following three elements are present:
a) an investment of money has been made
b) in a common enterprise
c) and the investor has the expectation of profits, which profits are expected to arise solely, or substantially, from the efforts of the promoter or third party.
If you are in California, like me, there is another test that is applied, as well: Silver Hills Country Club vs. Sobieski, 55 Cal.2d at 811, 361 P.2d 906 (Cal. 1961) in determining whether an interest constitutes a security. It should meet these 4 factors:
(1) whether funds are being raised for a business venture or
enterprise;
(2) whether the transaction is offered indiscriminately to the public at large;
(3) whether the investors are substantially powerless to effect the success of the enterprise; and
(4) whether the investor’s money is substantially at risk because it is inadequately secured.
Notice that you don't have to meet these tests in a TIC: and that if you follow the IRS ruling, it's pretty easy not to meet them. Note that if you do, you'd better have a securities license. Keep in mind that our state has a lot of regulations about real estate syndications, because we've had a lot of crooks doing it, and give those a glance, too (that, too, is group ownership, though of a different variety)
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