Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-52

1960-1 C.B. 186

Caution: Revoked by Rev. Rul. 73-555

IRS Headnote

In connection with the sale of real property, liabilities of the seller such as liens, accrued interest, and taxes, which are assumed and paid by the purchaser of the property in the taxable year of sale, should be included by the seller as part of the payments received in the year of sale for the purpose of determining whether the transaction was an installment sale subject to the provisions of section 453(b) of the Internal Revenue Code of 1954.

Full Text

Rev. Rul. 60-52

Advice has been requested whether, in connection with the sale of real property, liabilities of the seller such as liens, accrued interest, and taxes which are in effect or directly assumed by the purchaser of property, should be considered by the seller as part of the payments received in the taxable year of sale for the purpose of determining whether the transaction qualifies as an installment sale, subject to the provisions of section 453(b) of the Internal Revenue Code of 1954.

Section 453(b) of the Code provides that income from sales of realty and casual sales of personalty may be reported on the installment method if payments in the year of sale (exclusive of evidences of indebtedness of the purchaser) do not exceed 30 percent of the selling price.

Section 164(d)(1)(A) of the Code provides that so much of the property tax on the realty being sold as is properly allocable to that part of the tax year which ends on the day before the date of sale is to be treated as a tax imposed on the seller. In determining the amount realized by the seller of real property, section 1001(b)(2) of the Code provides for taking into account amounts representing real property taxes which are treated under section 164(d) of the Code as imposed on the seller, if such taxes are to be paid by the purchaser.

In Katherine H. Watson v. Commissioner, 20 B.T.A. 270, acquiescence, C.B. X-1, 68 (1931), where the purchase price of property included payment by the purchaser of accrued interest on the existing mortgage to the date of sale, accrued city and county taxes to the date of sale, existing paving liens, and the interest on such liens, the United States Board of Tax Appeals held that though such charges were part of the purchase price, they were not part of the initial payments, since there was no evidence presented that the purchaser had paid them in the taxable year of sale. This implies that if payment of these charges had been made by the purchaser during the taxable year, the Board of Tax Appeals would have included them as part of the initial payments in the year of sale.

In Wagegro Corporation v. Commissioner, 38 B.T.A. 1225, acquiescence, C.B. 1939-1 (Part I) 36, where the seller's legal expenses in consummating the sale were paid by the purchaser and made a part of the consideration for the sale, the Board of Tax Appeals stated, "The dual conception of the direct payment by the purchaser to the vendor's obligee which the law recognizes for other income tax purposes must be preserved here as well." It held that as the payment was a part of the consideration constructively received by the vendor in the sale, it had to be regarded as an initial payment so as to qualify the sale for the installment method of reporting income.

Accordingly, it is held that, in connection with the sale of real property, liabilities of the seller such as liens, accrued interest, and taxes, which are assumed and paid by the purchaser of the property in the taxable year of sale, should be included by the seller as part of the payments received in the year of sale for the purpose of determining whether the transaction was an installment sale subject to the provisions of section 453(b) of the Code.