James W. and Laura L. Keith - Page 1

                                   115 T.C. No. 42                                    

                               UNITED STATES TAX COURT                                

                     JAMES W. AND LAURA L. KEITH, Petitioners v.                      
                     COMMISSIONER OF INTERNAL REVENUE, Respondent                     

               Docket No. 11426-98.                Filed December 28, 2000.           

                    Prior to and during the years in issue, GIA, a                    
               proprietorship owned by P wife, sold residential real                  
               property by means of contracts for deed.  Under these                  
               agreements, the buyers obtained possession; assumed                    
               responsibility for taxes, insurance, and maintenance;                  
               and became obligated to make monthly payments, with                    
               interest, of the purchase price.   A warranty deed                     
               would be delivered to the buyers by GIA only upon full                 
               payment, and any default by the buyers prior thereto                   
               would render the contracts null and void, with GIA                     
               retaining all amounts paid as liquidated damages.                      
                    In accounting for these transactions, Ps reported                 
               the gain attributable to the contracts for deed in the                 
               year in which full payment was received and title                      
               transferred.  Only interest payments were included in                  
               income for tax purposes until such time.  GIA also                     
               depreciated the subject properties during the term of                  
               each contract.                                                         

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