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the first payment and significant benefits and burdens of
ownership shifted from him to the buyer, rather than in 1980 when
he received the final payment. The taxpayer delayed the transfer
of title to secure payment of the purchase price.3 We found that,
under the contract, the parties intended to shift the benefits
and burdens of ownership in 1972. The buyer was liable for the
full purchase price if he defaulted. In contrast, the Sopers
were not obliged to exercise the option or otherwise liable to
pay the full purchase price if they chose not to exercise the
option.
Under California law, an instrument is a contract of sale if
the optionee has an obligation to buy which the owner can enforce
by specific performance. Welk v. Fainbarg, 255 Cal. App. 2d 269,
63 Cal. Rptr. 127, 132-133 (1967). Here, the option agreement
did not provide that petitioners could enforce it by specific
performance. The Sopers believed the agreement was an option
agreement. The fact that petitioners and the Sopers expected
that the Sopers would exercise the option does not change the
fact that it was an option. At some time (not disclosed in the
record) on or around August 5, 1991, the Sopers exercised the
3 Under Hawaii law, an "agreement of sale" is a contract
which lets the seller keep title to property as a means of
securing the purchase price. Awalt v. Commissioner, T.C.
Memo. 1987-42.
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