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option and bought the Blue Lake residence. Until the Sopers
exercised the option, their payments of petitioners' mortgage
(including property taxes and liability insurance) were rent
payments on the leasehold. They were not installment payments
under an installment land sale contract. We conclude that the
option agreement was not an enforceable land sale contract.
4. Intent of the Parties
Petitioners contend that the option agreement should be
treated as a sale contract because the Sopers paid a large amount
for the option. Williams v. Commissioner, 1 F.3d 502 (7th Cir.
1993), affg. 94 T.C. 464 (1990) and T.C. Memo. 1992-269. In
Williams, the parties signed an option contract, under which the
buyers paid $60,000 (12 percent of the purchase price) for the
right to buy property, and the seller waived any right to seek
specific performance or damages if the buyers defaulted. The
Court of Appeals for the Seventh Circuit held that the possible
forfeiture of 12 percent of the purchase price did not convert
the option into a sale. That court stated that "It is true that
as the amount to be forfeited creeps toward the purchase price of
the house, a point is reached at which the sale is not of the
call but of the house". Id. at 507. Petitioners' reliance on
Williams is misplaced because we do not view their circumstances,
where the Sopers paid a nonrefundable 12.35 percent of the
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