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Upon full payment of the contract price, petitioners would
recognize income on the disposition of the property. Gain on the
sale would be computed by reducing the total sale price by
petitioners’ adjusted basis in the property.
Discussion
I. Contentions of the Parties
Petitioners contend that their method of accounting for and
recognizing gain attributable to the contracts for deed is
appropriate and clearly reflects income. According to
petitioners, the contracts are mere voidable, executory
agreements and as such do not effect a closed and completed sale
in the year signed. Hence, in petitioners’ view, there is no
disposition of the properties for tax purposes and no consequent
realization of gain until final payment is received and title
transferred.
Conversely, respondent asserts that petitioners’ method of
accounting for sales under the subject contracts for deed is
improper and fails to clearly reflect income. Respondent avers
that each instrument produced a completed sale in the year of
execution, as the benefits and burdens of ownership were
transferred from petitioners to the buyer at that time.
Respondent, characterizing petitioners as accrual method
taxpayers, therefore concludes that no grounds exist for
deferring recognition of gain on these completed transactions.
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Last modified: May 25, 2011