Thursday April 25, 2024

Rev. Rul. 69-93

GiftLaw Note: There are two basic types of contracts. A sale is a contract, but a promise to sell in the future is also a contract. Virtually any property may be transferred through contract. In this ruling, the initial agreement was a promise to sell in the future. The Service determined that the sale and recognition of gain would be effective at a future date.

With a charitable transfer, the application is similar. A promise to make a charitable gift, even if legally binding, does not entitle the donor to a charitable deduction until the gift is completed. As of the date for the actual transfer, then the donor may report the charitable deduction. This principle applies to promissory notes, gifts of options and other gifts in which the actual transfer of property and charitable deduction occurs in the future.

Rev. Rul. 69-93, 1969-1 C.B. 139

Service Headnote

A nominal payment made when a purchase contract for real estate is signed is treated as a deposit and is taken into account in determining the character and amount of income in the year the actual sale is consummated; A.R.R. 13 and 0.988 superseded.

Rev. Rul. 69-93

In October 1967 A entered into an agreement with B for the conveyance of real estate on March 1, 1968. A payment of a nominal amount was made when the contract was signed. The balance of the purchase price was paid at the date of conveyance (March 1, 1968), at which time B took possession of the property. During the period between October 1967 and March 1, 1968, A, the vendor, had the legal title, the right of possession, and the right to the rents and profits that might arise out of this property.

Held, A did not realize gain or loss in October 1967 since on that date there was a mere execution of the contract to sell real estate in the future. The sale occurred at the time the deed passed or at the time possession and the burdens and benefits of ownership were, from a practical standpoint, transferred to the buyer. Since these events all took place on March 1, 1968, that is the date on which the sale occurred. The payment made prior to the sale is deemed to be in the nature of a deposit on the purchase price of the property and is to be taken into account in determining the character and amount of income or gain or loss, in the year of sale.

A.R.R. 13, C.B. 2, 78 (1920), and O. 988, C.B. 2, 84 (1920), are superseded, since the position therein is restated under current statute and regulations in this Revenue Ruling.