-56- proceeds for it are reportable as taxable income or as a nontaxable return of capital and (2) if the option proceeds are income to the grantor of the option, the character of the income as capital or ordinary must be determined. See Old Harbor Native Corp. v. Commissioner, 104 T.C. 191, 200 (1995). These considerations remain even though the grantor retains the option amount whether or not the option is exercised. See Hicks v. Commissioner, T.C. Memo. 1978-373. Petitioners, although they had control over and had unfettered use of the $10,000 in 1989, had income in the year the option lapsed, 1991. 15 Hastings--Lease Versus Sale We now must decide whether the "Lease Option" executed on November 1, 1989, and the "Real Estate Purchase Option" executed on November 3, 1989, effected a sale or a lease with an option to buy. If we decide that the agreements effected a sale, we must then decide the proper characterization of the payments received by petitioners and the expenses claimed by petitioners. Respondent argues that petitioners mischaracterized the agreement by reporting the related items as though the agreement were a lease instead of a sale. Petitioners contend that they properly characterized the transaction as a lease with an option. In this instance, we are not required to decide which of the two agreements, the Lease Option or the Real Estate Purchase Option, represented the bargain between petitioners and the Woods. Whether a sale is complete for Federal tax purposes depends on all of the facts and circumstances. Derr v. Commissioner, 77Page: Previous 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 Next
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