Revenue Ruling 2005-74 - December 19, 2005 - /title> <meta name="Description" content="This ruling addresses the tax treatment of costs an employer incurs in connection with three different home purchase programs the employer may offer to employees who are being relocated. Transactions under the three programs are analyzed to determine whether, based on the benefits and burdens of ownership of an employee's home, the transactions are treated for tax purposes as a sale of the home by the employee to the employer followed by a separate sale by the employer to a third party buyer, or as one sale by the employee to the third party buyer facilitated by the employer."> <meta name="Target" content="Revenue Ruling 2005-74"> <meta name="Author" content="UncleFed.com"> <link rel="stylesheet" href="/Resources/css/ufsitestyle.css"> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> <meta name="generator" content="Companion 4.0.5"> <script language="JAVASCRIPT" type="text/javascript" src="/Resources/js/loadmenus.js"></script> <script language="JavaScript1.2" type="text/javascript" src="/Resources/navigation/mm_menu.js"></script> </head> <body bgcolor="#FFFFFF" background="/Resources/files/back_white.jpg" text="#0F2864" link="#990000" vlink="#808080" alink="#990000" leftmargin="0" topmargin="0" marginwidth="0" marginheight="0"> <table width="768" border="0" align="center" cellpadding="0" cellspacing="0"> <tr> <td height="5" colspan="2"><img src="/Resources/files/spacer.gif" height="5"></td> </tr> <tr> <td height="5" colspan="2" background="/Resources/files/back_red.jpg" bgcolor="#999999"><img src="/Resources/files/spacer.gif" height="5"></td> </tr> <tr valign="top"> <td height="60" colspan="2" background="/Resources/files/uf_banner_042803.jpg"><table width="100%" height="60" border="0" cellpadding="5" cellspacing="0"> <tr> <td width="400" valign="top"><img src="/Resources/files/spacer.gif" width="400" height="50"></td> <td valign="middle" class="body4-b16"><div align="right">Internal Revenue Bulletins </div></td> </tr> </table></td> </tr> <tr valign="top"> <td height="24" colspan="2"> <script language="JavaScript1.2">mmLoadMenus();</script> <img name="navigation" src="/Resources/navigation/navigation.gif" width="768" height="20" border="0" usemap="#m_navigation" alt=""> <map name="m_navigation"> <area shape="rect" coords="14,2,136,20" href="/index.html" alt="" > <area shape="rect" coords="172,2,290,22" href="#" alt="" onMouseOut="MM_startTimeout();" onMouseOver="MM_showMenu(window.mm_menu_0520162241_0,170,22,null,'navigation');" > <area shape="rect" coords="316,2,453,22" href="#" alt="" onMouseOut="MM_startTimeout();" onMouseOver="MM_showMenu(window.mm_menu_0501162545_1,321,22,null,'navigation');" > <area shape="rect" coords="467,2,610,22" href="#" alt="" onMouseOut="MM_startTimeout();" onMouseOver="MM_showMenu(window.mm_menu_0501163416_4,470,22,null,'navigation');" > <area shape="rect" coords="642,2,743,22" href="#" alt="" onMouseOut="MM_startTimeout();" onMouseOver="MM_showMenu(window.mm_menu_0501165431_5,626,22,null,'navigation');" > </map> </td> </tr> <tr> <tr> <td width="618" valign="top"> <table width="100%" height="62" border="0" cellpadding="0" cellspacing="0"> <tr valign="top"> <td height="25" colspan="2" valign="middle" background="/Resources/files/back_blue.jpg" class="nav"><img src="/Resources/files/spacer.gif" width="1" height="25" align="absmiddle"> <a href="/index.html">Home</a> >  <a href="/Tax-Bulls/index.html">Internal Revenue Bulletins</a> > <a href="/Tax-Bulls/2005/index.html">2005</a> > <a href="irb05-51.html">Bulletin No. 2005-51</a> > <a href="rr05-74.html">Revenue Ruling 2005-74</a>  </td> <td width="5" valign="middle" class="nav"><img src="/Resources/files/spacer.gif" width="5" height="100%"></td> </tr> <tr valign="top"> <td valign="top" colspan="2" align="center"><table class="main-body"><tr><td>  <div align="center"><table width="100%"> <tr> <td align="left" class="body1">Revenue Ruling 2005-74</td> <td align="right" class="body1">December 19, 2005</td> </tr> </table></div> <h3 class="page-title">Employee Relocation Costs</h3> <Div class=KonaBody>  <div class="highlights"> <p> <span class="bold"><b>Employee relocation costs. </b></span>This ruling addresses the tax treatment of costs an employer incurs in connection with three different home purchase programs the employer may offer to employees who are being relocated. Transactions under the three programs are analyzed to determine whether, based on the benefits and burdens of ownership of an employee's home, the transactions are treated for tax purposes as a sale of the home by the employee to the employer followed by a separate sale by the employer to a third party buyer, or as one sale by the employee to the third party buyer facilitated by the employer. </p> </div> <div class="sect1" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e200"></a>ISSUE </h3> </div> </div> <div></div> </div> <p>Whether the transactions in the following situations are, for federal tax purposes, a sale of a home by an employee to an employer through the employer’s agent, a relocation management company, followed by a separate sale of that home by the employer to a third party buyer, or one sale of the home from the employee to the third party buyer facilitated by the employer through the relocation management company. </p> </div> <div class="sect1" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e205"></a>FACTS </h3> </div> </div> <div></div> </div> <div class="sect2" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e208"></a> <span class="emphasis"><em>Situation 1</em></span> </h3> </div> </div> <div></div> </div> <p>Company <span class="emphasis"><em>X</em></span> enters into a contract with <span class="emphasis"><em>Y</em></span>, a relocation management company, to provide relocation assistance, including a home purchase program, to employees of <span class="emphasis"><em>X</em></span> whom <span class="emphasis"><em>X</em></span> is relocating to new job sites. Under the contract, <span class="emphasis"><em>Y</em></span> agrees to act as <span class="emphasis"><em>X</em></span>’s agent in purchasing at fair market value the homes of employees who are being relocated and then selling the homes to third party buyers. <span class="emphasis"><em>X</em></span> is liable for all costs incurred by <span class="emphasis"><em>Y</em></span> in purchasing and selling the homes. <span class="emphasis"><em>X</em></span> also is liable for any losses incurred by <span class="emphasis"><em>Y</em></span> on the sale of any home, and is entitled to proceeds from the sale of a home in excess of the costs of purchasing the home. In no event will <span class="emphasis"><em>X</em></span>, or <span class="emphasis"><em>Y</em></span> as <span class="emphasis"><em>X</em></span>’s agent, pay an employee any amount representing gain on the subsequent sale of the employee’s home to a third party buyer. <span class="emphasis"><em>X</em></span> agrees to pay <span class="emphasis"><em>Y</em></span> a fee for performing these services on <span class="emphasis"><em>X</em></span>’s behalf. </p> <p> <span class="emphasis"><em>A</em></span> is an employee of <span class="emphasis"><em>X</em></span> that <span class="emphasis"><em>X</em></span> is relocating to another job site. Pursuant to the contract with <span class="emphasis"><em>X</em></span>, <span class="emphasis"><em>Y</em></span> offers its services under the home purchase program to <span class="emphasis"><em>A</em></span>. <span class="emphasis"><em>A</em></span> chooses to use <span class="emphasis"><em>Y</em></span>’s services and selects two appraisers from a list maintained by <span class="emphasis"><em>Y</em></span>. Each appraiser prepares an appraisal of <span class="emphasis"><em>A</em></span>’s home, and the appraisals are averaged to determine the fair market value price at which <span class="emphasis"><em>Y</em></span> will offer to purchase the home. </p> <p>The purchase price for <span class="emphasis"><em>A</em></span>’s home determined under the appraisal process is $500<span class="emphasis"><em>x</em></span>. Under a proposed contract of sale, <span class="emphasis"><em>Y</em></span> offers to purchase <span class="emphasis"><em>A</em></span>’s home for $500<span class="emphasis"><em>x</em></span>. This offer remains open for 90 days. If <span class="emphasis"><em>A</em></span> accepts <span class="emphasis"><em>Y</em></span>’s offer by signing the contract of sale, the contract of sale requires <span class="emphasis"><em>A</em></span> to vacate the home and deliver possession to <span class="emphasis"><em>Y</em></span> within a specified period of time. If the amount of <span class="emphasis"><em>Y</em></span>’s offer is less than the outstanding balance on <span class="emphasis"><em>A</em></span>’s mortgage, the contract of sale requires <span class="emphasis"><em>A</em></span> to pay the difference to <span class="emphasis"><em>Y</em></span> at or before the closing of the sale. The contract of sale is not contingent or dependent in any way upon <span class="emphasis"><em>Y</em></span>’s entering into a sales agreement with a subsequent third party buyer, or any other event associated with <span class="emphasis"><em>Y</em></span>’s subsequent sale of the home, such as the buyer’s qualification for financing or the settlement date. Under the contract of sale, <span class="emphasis"><em>Y</em></span> is unconditionally obligated to pay the $500<span class="emphasis"><em>x</em></span> purchase price and may assume, take subject to, or otherwise become responsible for any outstanding mortgages, liens, and encumbrances. The contract provides that <span class="emphasis"><em>Y</em></span> becomes unconditionally obligated for all maintenance, taxes, insurance, expenses, risks, losses, and costs associated with the home as of the ”settlement date,” that is, the later of the date of the contract of sale or the date <span class="emphasis"><em>A</em></span> vacates the home and turns possession over to <span class="emphasis"><em>Y</em></span>. If <span class="emphasis"><em>A</em></span> fails to perform its obligations under the contract, <span class="emphasis"><em>Y</em></span> may obtain damages or specific performance as a remedy. After the settlement date, <span class="emphasis"><em>Y</em></span> holds itself out as the owner of the home to the general public. <span class="emphasis"><em>Y</em></span> deals with mortgage holders, insurance companies, home maintenance companies, taxing jurisdictions, utility companies, real estate brokers, and other third parties in its own name. </p> <p>At closing, <span class="emphasis"><em>Y</em></span> pays <span class="emphasis"><em>A</em></span> the value of the equity in the home ($500<span class="emphasis"><em>x</em></span> purchase price minus any mortgages, liens, or encumbrances assumed), plus any property tax prorations and other customary allocations (such as homeowner association dues). <span class="emphasis"><em>Y</em></span> pays the settlement costs that are typically imposed on the buyer under local law. <span class="emphasis"><em>A</em></span>, as grantor, transfers the home to <span class="emphasis"><em>Y</em></span> by executing a deed to the property on which the name of the grantee is left blank (a ”blank deed”). <span class="emphasis"><em>Y</em></span> has the option of inserting its own name as grantee and recording the deed, or inserting the name of a third party buyer of the home from <span class="emphasis"><em>Y</em></span> at the time <span class="emphasis"><em>Y</em></span> closes the sale of the home to the third party buyer. </p> <p> <span class="emphasis"><em>Y</em></span> does not insert its name as grantee and does not record the deed. <span class="emphasis"><em>Y</em></span> manages and maintains the property while listing the home for sale through a real estate broker that locates <span class="emphasis"><em>B</em></span>, a third party buyer. <span class="emphasis"><em>Y</em></span> sells the home to <span class="emphasis"><em>B</em></span> for $490<span class="emphasis"><em>x</em></span>. <span class="emphasis"><em>Y</em></span> inserts <span class="emphasis"><em>B</em></span>’s name in the deed and conveys legal title to the home to <span class="emphasis"><em>B</em></span>. Pursuant to the contract between <span class="emphasis"><em>X</em></span> and <span class="emphasis"><em>Y</em></span>, <span class="emphasis"><em>X</em></span> pays <span class="emphasis"><em>Y</em></span>’s fee and reimburses <span class="emphasis"><em>Y</em></span> for any costs incurred and the $10<span class="emphasis"><em>x</em></span> loss on the sale of the home to <span class="emphasis"><em>B</em></span>. </p> </div> <div class="sect2" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e452"></a> <span class="emphasis"><em>Situation 2</em></span> </h3> </div> </div> <div></div> </div> <p>The facts are the same as in <span class="emphasis"><em>Situation 1</em></span> except that the home purchase program provided for in <span class="emphasis"><em>X</em></span>’s contract with <span class="emphasis"><em>Y</em></span> also affords an ”amended value option” to employees that are being relocated. In addition to receiving the appraised value offer from <span class="emphasis"><em>Y</em></span>, an employee who exercises the amended value option may list the home with a real estate broker to market the home to other potential buyers. If the employee exercises the amended value option, the employee must select the broker from a list of qualified brokers maintained by <span class="emphasis"><em>Y</em></span>. Any listing agreement entered into by the employee must include an ”exclusion clause” that provides that no commission is earned by or due to the broker unless a sale of the home to a third party buyer closes, and that a sale of the home to <span class="emphasis"><em>Y</em></span> terminates the listing agreement without any commission being earned or due. </p> <p>If a potential third party buyer makes an offer, the real estate broker refers the offer to <span class="emphasis"><em>Y</em></span>. If <span class="emphasis"><em>Y</em></span> determines that the offer is <span class="emphasis"><em>bona fide</em></span> and exceeds <span class="emphasis"><em>Y</em></span>’s earlier offer based on the appraisals, <span class="emphasis"><em>Y</em></span> amends the contract of sale to match the third party buyer’s offer. If the employee accepts the amended offer by signing the contract of sale, <span class="emphasis"><em>Y</em></span> then enters into a new listing agreement with a real estate broker, customarily the broker previously selected by the employee, to market the home to a third party buyer, who may or may not be the same potential buyer who made the previous offer. The employee does not sign any contract, binder or other document with a third party buyer, nor does the employee accept any down payment, deposit, or earnest money from a third party buyer. </p> <p> <span class="emphasis"><em>Y</em></span> remits to <span class="emphasis"><em>X</em></span> any proceeds received on the sale of the home to a third party buyer in excess of the purchase price paid to the employee for the home. In no event does <span class="emphasis"><em>Y</em></span> or <span class="emphasis"><em>X</em></span> transfer any part of the excess amount to the employee. </p> <p>If the sale of the home by <span class="emphasis"><em>Y</em></span> to the third party buyer does not close, the employee is not obligated under the contract of sale to refund any portion of the purchase price to <span class="emphasis"><em>Y</em></span>. Nothing related to <span class="emphasis"><em>Y</em></span>’s sale of the home to a third party buyer affects the employee’s sale of the home to <span class="emphasis"><em>Y</em></span>. </p> <p> <span class="emphasis"><em>C</em></span> is an employee of <span class="emphasis"><em>X</em></span> whom <span class="emphasis"><em>X</em></span> is relocating to another job site. In addition to receiving an appraised value offer from <span class="emphasis"><em>Y</em></span> of $500<span class="emphasis"><em>x</em></span>, <span class="emphasis"><em>C</em></span> exercises the amended value option and lists the home with a qualified real estate broker. As a result of this listing, <span class="emphasis"><em>C</em></span> obtains an offer for $520<span class="emphasis"><em>x</em></span> from a third party buyer, <span class="emphasis"><em>D</em></span>, and forwards the offer to <span class="emphasis"><em>Y</em></span>. <span class="emphasis"><em>Y</em></span> determines that the $520<span class="emphasis"><em>x</em></span> offer is <span class="emphasis"><em>bona fide</em></span> and amends its proposed contract of sale to match <span class="emphasis"><em>D</em></span>’s offer. <span class="emphasis"><em>C</em></span> accepts <span class="emphasis"><em>Y</em></span>’s offer by signing the contract of sale at the amended price of $520<span class="emphasis"><em>x</em></span>. </p> <p> <span class="emphasis"><em>Y</em></span> subsequently pays to <span class="emphasis"><em>C</em></span> the value of the equity in the home based on the purchase price of $520<span class="emphasis"><em>x</em></span>. Pursuant to the exclusion clause, <span class="emphasis"><em>C</em></span>’s listing agreement with the real estate broker is terminated without any commission being earned or due. <span class="emphasis"><em>Y</em></span> takes possession of the home and, pursuant to the contract of sale, becomes unconditionally obligated for all maintenance, taxes, insurance, expenses, risks, losses, and costs associated with the home. <span class="emphasis"><em>C</em></span>, as grantor, transfers the home to <span class="emphasis"><em>Y</em></span> by executing a blank deed to the property. <span class="emphasis"><em>Y</em></span> leaves the name of the grantee blank and does not record this deed. </p> <p> <span class="emphasis"><em>Y</em></span> enters into a new listing agreement with the real estate broker and thereafter <span class="emphasis"><em>Y</em></span> enters into a separate sales agreement with <span class="emphasis"><em>D</em></span> for $520<span class="emphasis"><em>x</em></span>. The sales agreement is made in <span class="emphasis"><em>Y</em></span>’s name. <span class="emphasis"><em>C</em></span> does not sign any contract, binder or other document with <span class="emphasis"><em>D</em></span>. <span class="emphasis"><em>Y</em></span>’s sale of the home to <span class="emphasis"><em>D</em></span> closes. At closing, <span class="emphasis"><em>D</em></span> pays $520<span class="emphasis"><em>x</em></span> to <span class="emphasis"><em>Y</em></span>, <span class="emphasis"><em>Y</em></span> inserts <span class="emphasis"><em>D</em></span>’s name on the deed as grantee, and the deed is recorded in <span class="emphasis"><em>D</em></span>’s name. </p> </div> <div class="sect2" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e652"></a> <span class="emphasis"><em>Situation 3</em></span> </h3> </div> </div> <div></div> </div> <p>The facts are the same as in <span class="emphasis"><em>Situation 2</em></span>, except that <span class="emphasis"><em>X</em></span> instead enters into a contract with <span class="emphasis"><em>Z</em></span>, a relocation management company, to provide relocation assistance to employees whom <span class="emphasis"><em>X</em></span> is relocating to new job sites. Under the home purchase program provided for in <span class="emphasis"><em>X</em></span>’s contract with <span class="emphasis"><em>Z</em></span>, employees may select an ”amended value option” that has different terms and conditions than the amended value option offered by <span class="emphasis"><em>Y</em></span> as described in <span class="emphasis"><em>Situation 2</em></span>. Specifically, <span class="emphasis"><em>Z</em></span>, acting as <span class="emphasis"><em>X</em></span>’s agent, is not required to offer a higher, amended value for an employee’s home, based on an offer from a prospective third party buyer located by the employee, unless and until <span class="emphasis"><em>Z</em></span> enters into a sales contract with that third party buyer. In addition, the employee retains the right to approve or reject any offer or counter-offer made in the course of negotiations between <span class="emphasis"><em>Z</em></span> and the third party buyer. Finally, the proceeds representing the higher amended value are distributed to the employee, and not to <span class="emphasis"><em>X</em></span> or <span class="emphasis"><em>Z</em></span>, only if and when the sale to the third party buyer closes. </p> <p> <span class="emphasis"><em>E</em></span>, an employee of <span class="emphasis"><em>X</em></span>, receives an appraised value offer from <span class="emphasis"><em>Z</em></span> of $500<span class="emphasis"><em>x</em></span> for <span class="emphasis"><em>E</em></span>’s home. <span class="emphasis"><em>E</em></span> exercises <span class="emphasis"><em>Z</em></span>’s amended value option and locates a prospective purchaser, <span class="emphasis"><em>F</em></span>, who offers $510<span class="emphasis"><em>x</em></span> for <span class="emphasis"><em>E</em></span>’s home. <span class="emphasis"><em>E</em></span> informs <span class="emphasis"><em>Z</em></span> of <span class="emphasis"><em>F</em></span>’s offer of $510<span class="emphasis"><em>x</em></span>. <span class="emphasis"><em>Z</em></span>, with <span class="emphasis"><em>E</em></span>’s approval, agrees that <span class="emphasis"><em>Z</em></span> will accept <span class="emphasis"><em>F</em></span>’s offer and sell the home to <span class="emphasis"><em>F</em></span> for $510<span class="emphasis"><em>x</em></span> once <span class="emphasis"><em>Z</em></span> purchases the home from <span class="emphasis"><em>E</em></span>. <span class="emphasis"><em>Z</em></span> subsequently enters into a contract to purchase the home from <span class="emphasis"><em>E</em></span> for $510<span class="emphasis"><em>x</em></span>. <span class="emphasis"><em>Z</em></span> closes on the purchase of the home from <span class="emphasis"><em>E</em></span> for $510<span class="emphasis"><em>x</em></span> and receives a blank deed signed by <span class="emphasis"><em>E</em></span>, as grantor. At the closing of the sale of the home to <span class="emphasis"><em>F</em></span>, <span class="emphasis"><em>Z</em></span> inserts <span class="emphasis"><em>F</em></span>’s name on the deed as grantee, and the deed is recorded in <span class="emphasis"><em>F</em></span>’s name. <span class="emphasis"><em>Z</em></span> pays to <span class="emphasis"><em>E</em></span> the value of the equity in the home based on the $510<span class="emphasis"><em>x</em></span> sales price. </p> </div> </div> <div class="sect1" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e812"></a>LAW </h3> </div> </div> <div></div> </div> <p>Section 61(a) of the Internal Revenue Code provides that except as otherwise provided in Subtitle A, gross income means all income from whatever source derived, including (but not limited to) compensation for services, including fees, commissions, fringe benefits, and similar items, and gains derived from dealings in property. <span class="emphasis"><em>See generally</em></span> §§ 1.61-1, 1.61-2, and 1.61-6 of the Income Tax Regulations. </p> <p>Section 82 provides that except as provided in § 132(a)(6), gross income includes (as compensation for services) any amount received or accrued, directly or indirectly, by an individual as a payment for or reimbursement of expenses of moving from one residence to another residence that is attributable to employment or self-employment. <span class="emphasis"><em>See generally</em></span> § 1.82-1. </p> <p>Section 1001(a) provides that the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in § 1011 for determining gain, and the loss shall be the excess of the adjusted basis provided in § 1011 for determining loss over the amount realized. </p> <p>The examples in § 1.6045-4(r) illustrate the information reporting rules in § 1.6045-4 for real estate transactions. <span class="emphasis"><em>Example</em></span> (2) in § 1.6045-4(r) describes a transaction in which an employee, <span class="emphasis"><em>C</em></span>, who is being transferred by his employer, accepts an offer to purchase <span class="emphasis"><em>C</em></span>’s home from <span class="emphasis"><em>Y</em></span>, a corporation acting on behalf of the employer to facilitate the relocation of transferred employees. <span class="emphasis"><em>C</em></span> transfers the home to <span class="emphasis"><em>Y</em></span> for $250,000 by executing a deed to the property in blank and giving <span class="emphasis"><em>Y</em></span> a power of attorney to dispose of the home. <span class="emphasis"><em>C</em></span> also immediately vacates the home, whereupon <span class="emphasis"><em>Y</em></span> duly pays all costs associated with the home and is entitled to all income from the home, including sales proceeds. Shortly thereafter, <span class="emphasis"><em>Y</em></span> sells the residence to <span class="emphasis"><em>D</em></span> and inserts <span class="emphasis"><em>D</em></span>’s name in the deed previously executed by <span class="emphasis"><em>C</em></span>. Thus, neither <span class="emphasis"><em>Y</em></span> nor the employer ever becomes a record owner of the residence. <span class="emphasis"><em>C</em></span>’s transfer of the residence to <span class="emphasis"><em>Y</em></span> is a sale of reportable real estate as defined in § 1.6045-4(b)(2) and is subject to information reporting under § 1.6045-4. However, information reporting of the subsequent sale to <span class="emphasis"><em>D</em></span> is not required because <span class="emphasis"><em>Y</em></span>, as a corporation, is a transferor that is exempt from information reporting under § 1.6045-4(d)(1). </p> <p>The issue is whether the transactions described in <span class="emphasis"><em>Situation 1</em></span>, <span class="emphasis"><em>Situation 2</em></span>, and <span class="emphasis"><em>Situation 3</em></span> involve two separate sales of the home, a first sale from the employee to the employer and a second sale from the employer to a third party buyer, or only one sale from the employee to the third party buyer. A sale occurs for federal tax purposes upon the transfer of the benefits and burdens of ownership. Whether the benefits and burdens of ownership have been transferred is a question of fact that must be ascertained from the intention of the parties as evidenced by their written agreements read in the light of attending facts and circumstances. <span class="emphasis"><em>See Grodt & McKay Realty, Inc. v. Commissioner</em></span>, 77 T.C. 1221, 1237 (1981); <span class="emphasis"><em>see also Major Realty v. Commissioner</em></span>, 749 F.2d 1483, 1486 (11th Cir. 1985). </p> <p>Courts consider the following factors in determining whether the benefits and burdens of ownership are transferred: (1) whether legal title passes; (2) how the parties treat the transaction; (3) whether an equity was acquired in the property; (4) whether the contract creates a present obligation on the seller to execute and deliver a deed and a present obligation on the purchaser to make payments; (5) whether the right of possession is vested in the purchaser; (6) which party pays the property taxes; (7) which party bears the risk of loss or damage to the property; and (8) which party receives the profits from the operation and sale of the property. <span class="emphasis"><em>Grodt and McKay</em></span>, 77 T.C. at 1237-1238. </p> <p>Although the passage of legal title is a significant factor, it is not determinative. <span class="emphasis"><em>Yelencsics v. Commissioner</em></span>, 74 T.C. 1513, 1527 (1980); <span class="emphasis"><em>Deyoe v. Commissioner</em></span>, 66 T.C. 904, 910 (1976). Thus, for federal tax purposes a sale occurs upon the transfer of the benefits and burdens of ownership rather than upon the satisfaction of the technical requirements for passage of legal title under state law. <span class="emphasis"><em>Derr v. Commissioner</em></span>, 77 T.C. 708, 723 (1981); <span class="emphasis"><em>Yelencsics</em></span>, 74 T.C. at 1527. <span class="emphasis"><em>See also</em></span> Rev. Rul. 72-252, 1972-1 C.B. 193 (sale occurs when the purchaser executes an unconditional contract to purchase property, acquires possession, and assumes other burdens and privileges of ownership, even if the deed to the property is delivered later). Consequently, the execution of a contract to purchase real estate in the future generally is not a realization event. <span class="emphasis"><em>See</em></span> Rev. Rul. 69-93, 1969-1 C.B. 139. </p> <p>In <span class="emphasis"><em>Amdahl Corp. v. Commissioner</em></span>, 108 T.C. 507 (1997), the court considered whether payments made by the taxpayer to relocation service companies to assist in the disposition of homes of relocated employees were deductible as ordinary expenses or as capital losses. The Internal Revenue Service contended that the taxpayer acquired ownership of the employees’ homes, that the homes were capital assets when resold by the taxpayer, and that the payments were deductible only as capital losses. The taxpayer argued that the payments were a form of employee benefits deductible as ordinary and necessary business expenses. </p> <p>On the facts presented in <span class="emphasis"><em>Amdahl</em></span>, the court agreed with the taxpayer that it did not acquire ownership of the employees’ homes, and that the payments were deductible as ordinary expenses. The court found that the most significant factors of the taxpayer’s relocation service programs demonstrated that the employees retained the benefits and burdens of ownership of the homes. In particular, the court emphasized that the relocating employees retained legal title to their homes through the use of blank deeds; that it was not the intent of the parties to transfer ownership of the homes, as evidenced by the fact the taxpayer did not generally hold itself out to the public as the purchaser or owner of the homes; that the contracts of sale did not create present obligations on the relocation service companies and the employees to effect a transfer of ownership of the homes; and that the employees received the profits from the subsequent sales of the homes by the taxpayer to third parties. </p> </div> <div class="sect1" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e935"></a>ANALYSIS </h3> </div> </div> <div></div> </div> <p>Pursuant to a benefits and burdens analysis of the transactions in <span class="emphasis"><em>Situation 1</em></span>, there are two separate sales of the home. Under the contract of sale between <span class="emphasis"><em>A</em></span> and <span class="emphasis"><em>Y</em></span>, <span class="emphasis"><em>A</em></span> is obligated to, and does, deliver a deed to the home to <span class="emphasis"><em>Y</em></span>. This delivery is accomplished whether <span class="emphasis"><em>A</em></span> delivers to <span class="emphasis"><em>Y</em></span> at closing a deed with <span class="emphasis"><em>Y</em></span>’s name inserted as grantee or a blank deed. <span class="emphasis"><em>See</em></span> § 1.6045-4(r), <span class="emphasis"><em>Example</em></span> (2). </p> <p>In <span class="emphasis"><em>Situation 1</em></span>, the delivery of the deed by <span class="emphasis"><em>A</em></span> to convey ownership of the home to <span class="emphasis"><em>Y</em></span> is accompanied by <span class="emphasis"><em>Y</em></span>’s corresponding obligation to pay the purchase price of the home to <span class="emphasis"><em>A</em></span>. On the settlement date, <span class="emphasis"><em>Y</em></span> acquires all of <span class="emphasis"><em>A</em></span>’s interest and equity in the home. </p> <p> <span class="emphasis"><em>A</em></span> and <span class="emphasis"><em>Y</em></span> treat the transaction as a sale of the home from <span class="emphasis"><em>A</em></span> to <span class="emphasis"><em>Y</em></span>. In this regard, the contract provides that <span class="emphasis"><em>A</em></span> is selling, and <span class="emphasis"><em>Y</em></span> is buying, the home. After purchasing the home, <span class="emphasis"><em>Y</em></span> deals with mortgage holders, insurance companies, home maintenance companies, taxing jurisdictions, utility companies, real estate brokers, and other members of the public in its own name and as if it were the owner of the home. If any sales agreement subsequently entered into by <span class="emphasis"><em>Y</em></span> with a third party buyer does not close, <span class="emphasis"><em>Y</em></span> remains responsible for all costs and risks attributable to ownership. </p> <p>After settlement, <span class="emphasis"><em>Y</em></span> has the sole right to possession of the home. <span class="emphasis"><em>Y</em></span> also agrees to pay real property and other taxes with respect to the home. <span class="emphasis"><em>Y</em></span> will sustain any loss or benefit from any gain if the consideration to <span class="emphasis"><em>A</em></span> (payments and any assumed liabilities) is greater or less than the amount received by <span class="emphasis"><em>Y</em></span> from a sale to a third party buyer. <span class="emphasis"><em>Y</em></span> has the risk of loss due to casualty and is responsible for insuring the home and making any and all necessary repairs to the home. </p> <p>By virtue of the agreement between <span class="emphasis"><em>X</em></span> and <span class="emphasis"><em>Y</em></span>, <span class="emphasis"><em>Y</em></span> is acting as <span class="emphasis"><em>X</em></span>’s agent. The application of the above factors establishes that the benefits and burdens of ownership of the home transfer from <span class="emphasis"><em>A</em></span> to <span class="emphasis"><em>X</em></span>, whether or not a blank deed is sufficient under local law to transfer legal title to the home to <span class="emphasis"><em>X</em></span>. While the reason <span class="emphasis"><em>X</em></span> acquires the benefits and burdens of ownership of the home is to facilitate <span class="emphasis"><em>A</em></span>’s relocation, this motivation is not incompatible with concluding that <span class="emphasis"><em>X</em></span> acquired the property. <span class="emphasis"><em>See</em></span> Rev. Ruls. 72-339, 1972-2 C.B. 31, and 82-204, 1982-2 C.B. 192; § 1.6045-4(r), <span class="emphasis"><em>Example</em></span> (2). </p> <p>Thus, in <span class="emphasis"><em>Situation 1</em></span>, <span class="emphasis"><em>A</em></span> sells the home to <span class="emphasis"><em>X</em></span> for $500<span class="emphasis"><em>x</em></span>. Any gain on the sale of the home is realized by <span class="emphasis"><em>A</em></span> under § 1001 and § 61(a)(3), and none of this amount constitutes taxable compensation to <span class="emphasis"><em>A</em></span> under § 61(a)(1). <span class="emphasis"><em>X</em></span>, acting through <span class="emphasis"><em>Y</em></span>, separately sells the home to <span class="emphasis"><em>B</em></span> for $490<span class="emphasis"><em>x</em></span>. </p> <p>Applying the benefits and burdens analysis to the transactions in <span class="emphasis"><em>Situation 2</em></span>, the fact that <span class="emphasis"><em>C</em></span> exercises the amended value option does not alter the conclusion that there are two separate sales of the home. For the reasons discussed with respect to the sale of the home from <span class="emphasis"><em>A</em></span> to <span class="emphasis"><em>X</em></span> in <span class="emphasis"><em>Situation 1</em></span>, the benefits and burdens of ownership also transfer from <span class="emphasis"><em>C</em></span> to <span class="emphasis"><em>X</em></span> in the sale of the home in <span class="emphasis"><em>Situation 2</em></span>. Furthermore, the sale of <span class="emphasis"><em>C</em></span>’s home to <span class="emphasis"><em>X</em></span> is not contingent in any respect on <span class="emphasis"><em>X</em></span>’s sale of the home to <span class="emphasis"><em>D</em></span> or any other third party buyer. <span class="emphasis"><em>X</em></span>’s agent, <span class="emphasis"><em>Y</em></span>, is identified as the seller in the sales agreement with <span class="emphasis"><em>D</em></span>, and under no circumstances is <span class="emphasis"><em>C</em></span> entitled to any part of any gain realized if the consideration received by <span class="emphasis"><em>X</em></span> on the sale of the home to <span class="emphasis"><em>D</em></span> exceeds the consideration paid to <span class="emphasis"><em>C</em></span> by <span class="emphasis"><em>X</em></span> on the purchase of the home. </p> <p>Thus, in <span class="emphasis"><em>Situation 2</em></span>, <span class="emphasis"><em>C</em></span> sells the home to <span class="emphasis"><em>X</em></span> for $520<span class="emphasis"><em>x</em></span>. Any gain on the sale of the home is realized by <span class="emphasis"><em>C</em></span> under § 1001 and § 61(a)(3), and none of this amount constitutes taxable compensation to <span class="emphasis"><em>C</em></span> under § 61(a)(1). <span class="emphasis"><em>X</em></span> separately sells the home to <span class="emphasis"><em>D</em></span> for $520<span class="emphasis"><em>x</em></span>. </p> <p>However, applying the benefits and burdens analysis to the transactions in <span class="emphasis"><em>Situation 3</em></span> yields a different result. In <span class="emphasis"><em>Situation 3</em></span> the amended value option offered under the contract between <span class="emphasis"><em>X</em></span> and <span class="emphasis"><em>Z</em></span>, the relocation company acting as <span class="emphasis"><em>X</em></span>’s agent, differs significantly from the option described in <span class="emphasis"><em>Situation 2</em></span>. The sale of <span class="emphasis"><em>E</em></span>’s home to <span class="emphasis"><em>Z</em></span>, acting for <span class="emphasis"><em>X</em></span>, at the higher amended price is contingent on <span class="emphasis"><em>Z</em></span> entering into a contract at that price with <span class="emphasis"><em>F</em></span>, the third party buyer located by <span class="emphasis"><em>E</em></span>. In addition, <span class="emphasis"><em>E</em></span> retains the right to approve any offer or counter-offer in any negotiations between <span class="emphasis"><em>Z</em></span> and <span class="emphasis"><em>F</em></span>. Therefore, although <span class="emphasis"><em>X</em></span>, through its agent <span class="emphasis"><em>Z</em></span>, is burdened with some costs in connection with the transaction, <span class="emphasis"><em>E</em></span> effectively retains the rights to negotiate the final contract and obtain the benefit of a higher price for the property. <span class="emphasis"><em>See Amdahl</em></span>, 108 T.C. at 523 (employer ”did not acquire beneficial ownership of the residences of its relocating employees”). </p> <p>Thus, in <span class="emphasis"><em>Situation 3</em></span> the transaction is, for federal tax purposes, one sale of the home from <span class="emphasis"><em>E</em></span> to <span class="emphasis"><em>F</em></span> for $510<span class="emphasis"><em>x</em></span>, facilitated by <span class="emphasis"><em>X</em></span> through its agent <span class="emphasis"><em>Z</em></span>. Any gain on the sale of the home is realized by <span class="emphasis"><em>E</em></span> under § 1001 and § 61(a)(3). Any expenses paid by <span class="emphasis"><em>X</em></span>, directly or through its agent <span class="emphasis"><em>Z</em></span>, with respect to the home, including maintenance costs, taxes, insurance, losses, and other costs associated with the home would be considered paid on behalf of <span class="emphasis"><em>E</em></span> by virtue of <span class="emphasis"><em>E</em></span>’s employment with <span class="emphasis"><em>X</em></span>. Consequently, any such amounts paid by <span class="emphasis"><em>X</em></span> constitute taxable compensation to <span class="emphasis"><em>E</em></span> under § 61(a)(1). </p> <p>The conclusions in this revenue ruling with respect to <span class="emphasis"><em>Situation 1</em></span> and <span class="emphasis"><em>Situation 2</em></span> apply to circumstances involving substantially similar relocation service programs. The Service will follow the <span class="emphasis"><em>Amdahl</em></span> opinion in circumstances involving relocation service programs that are substantially similar to the programs described in that opinion, and in other circumstances, such as those described in <span class="emphasis"><em>Situation 3</em></span>, which indicate that the benefits and burdens of ownership of the employees’ homes are not transferred to the employer. Consistent with the holdings in <span class="emphasis"><em>Situation 1</em></span> and <span class="emphasis"><em>Situation 2</em></span>, the use of a blank deed will not, by itself, cause a program to be treated as substantially similar to the programs described in <span class="emphasis"><em>Amdahl</em></span>. </p> </div> <div class="sect1" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e1329"></a>HOLDINGS </h3> </div> </div> <div></div> </div> <p>The transactions in <span class="emphasis"><em>Situation 1</em></span> and <span class="emphasis"><em>Situation 2</em></span> are, for federal tax purposes, sales of a home by an employee to an employer through the employer’s agent, a relocation management company, followed by a separate sale of that home by the employer to a third party buyer. The transaction in <span class="emphasis"><em>Situation 3</em></span> is, for federal tax purposes, one sale of a home by an employee to a third party buyer facilitated by the employer through the relocation management company. </p> </div> <div class="sect1" lang="en"> <div class="titlepage"> <div> <div> <h3 class="title"><a name="d0e1343"></a>DRAFTING INFORMATION </h3> </div> </div> <div></div> </div> <p>The principal author of this revenue ruling is Edward C. Schwartz of the Office of Associate Chief Counsel (Income Tax and Accounting). 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