1930 BTA LEXIS 2161">*2161 Where in the sale of real property the purchaser thereof assumes as a part of the consideration for the transfer, the payment of accrued interest on mortgages on the property, accrued taxes, paving liens, and interest thereon, the sum of such charges should not be treated as a part of the initial payments received in the taxable period in which the sale was made, in the absence of evidence that the items assumed by the purchaser were paid within the taxable period.
20 B.T.A. 270">*270 These proceedings, which were consolidated for hearing and decision, involve deficiencies in income taxes for 1925 as follows:
| Docket No. 39192 | $1,042.16 |
| 39193 | 1.388.14 |
20 B.T.A. 270">*271 The issue common to both cases is whether the gain realized on the sale of a certain piece of real estate is taxable on the basis of a complated transaction or the installment basis.
FINDINGS OF FACT.
In 1923 H. K. Watson and John E. Pushee each purchased an undivided one-half interest in a tract of land situated near St. Petersburg, Fla., at a cost of $31,500 to each. During the1930 BTA LEXIS 2161">*2162 early part of 1925 Katherine H. Watson, wife of H. K. Watson, purchased the interest of Pushee in the land for $37,500. In or about June, 1925, the petitioners sold their interests in the property for $96,300, which amount was to be divided equally between the vendors. The sale was closed on the following terms:
| Initial cash payment | $24,017.50 | |
| Mortgages assumed by purchaser | 29,500.00 | |
| Purchase money mortgage | 41,531.00 | |
| Charges assumed by purchaser: | ||
| Accrued interest on mortgages to date of sale | $847.67 | |
| Accrued city and county taxes on property from | ||
| January 1, 1925, to date of sale | 230.33 | |
| Paving liens | 166.80 | |
| Interest on paving liens | 6.70 | |
| 1,251.50 | ||
| Total | $96,300.00 |
No additional cash was paid in 1925 on the purchase price of the property. The mortgages assumed by the purchaser were mortgages assumed by the petitioners at the time they acquired the land. At the time the sale was closed the interest on the mortgages, city and county taxes and paving liens, together with interest thereon, were adjusted as of that date in the amounts set forth in the above tabulation, and the purchaser assumed the indebtedness. No payments were made by1930 BTA LEXIS 2161">*2163 the purchaser within the year 1925 on these obligations.
Petitioners kept their books on the cash receipts and disbursements basis of accounting.
In his determination of the deficiency respondent treated the items amounting to $1,251.50 assumed by the purchaser as part of the initial payments, and as that amount, when added to the cash received, exceeded 25 per cent of the selling price of the property, computed the tax on the transaction on the basis of a completed sale.
OPINION.
ARUNDELL: The single point in dispute is whether or not the prorated charges of $1,251.50 assumed by the purchaser as a part of the consideration for the transfer of the property should be added to the 20 B.T.A. 270">*272 cash paid to determine the amount of the initial payments received in the taxable year.
Section 212(d) of the Revenue Act of 1926, which was made retroactive to the year 1925 by the provisions of section 1208 of the same act, defines the term "initial payments," as used therein, as "the payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made."
1930 BTA LEXIS 2161">*2164 The regulations promulgated by the Commissioner under this provision of the statute provide that in the sale of mortgaged property the amount of the mortgage assumed by the purchaser "shall not be considered as a part of the 'initial payments' or the 'total contract price,' but shall be included as part of the 'purchase price,' as those terms are used in section 212(d), in articles 42 and 45, and this article." Article 44, Regulations 60. This construction of the statute was considered and accepted by the board in ; ; and .
No brief has been filed on behalf of the respondent and we are not informed of his reason for including as a part of the initial payments the amount of the prorated charges assumed by the purchaser in the face of his regulations excluding therefrom the amount of the mortgages. The evidence is clear that the prorated charges were not paid by the purchaser within the taxable year. From a practical standpoint there is no real distinction between the two forms of indebtedness assumed by the purchaser. All of1930 BTA LEXIS 2161">*2165 the items represented debts of the petitioners to third parties, and, like the mortgages assumed, were liens against the land sold. The sum of $24,017.50, being less than 25 per cent of the selling price of the property, petitioners are entitled to return the sale on the installment basis.
Decision will be entered under Rule 50.