AIReS Advisory
IRS Issues Revenue Ruling 2005-74
The much anticipated ruling from the IRS on its position concerning the taxability
of relocation related home sale programs has been released. Revenue Ruling
2005-74 reconfirms the IRS position on the Guaranteed Buy Out home sale
program and ends years of speculation on the treatment of the Amended Value
home sale program. However, there is some question as to the treatment of the
Buyer Value Option (BVO) program.
In Revenue Ruling 2005-74, the IRS states that the Guaranteed Buy Out, (GBO)
(a.k.a. Appraised Value Program) and the Amended Value (AV) option meet the
criteria for being non-taxable events, provided the programs are administered
properly. The IRS also confirmed that a single deed (i.e. “deed-in-blank”) program
would not provide any less protection in determining if the actual burden of
ownership was achieved, and therefore also qualifies for favorable tax treatment.
AIReS recommends that clients meet with their legal and tax counsel, as well
as their AIReS team member, to confirm their company position regarding
these programs. It is our understanding that conformance to ERC’s previously
recommended 11 Step Amended Value Procedure demonstrating the company’s
willingness to accept the burdens and benefits of homeownership will continue to
receive favorable tax treatment consideration in the eyes of the IRS.
The revenue ruling does not specifically mention a Buyer Value Option (BVO)
home sale program. Within the ruling, there is a scenario that resembles a portion
of a BVO program, however, the assumptions included in the scenario deviate
somewhat from the traditional BVO model. Therefore, it is left to interpretation as
to whether BVO programs comply.
AIReS Recommendations:
AIReS recommends that companies offering Buyer Value Option home sale
programs ensure their program complies with ERC’s 11 key elements (see box).
We further recommend that companies ensure that the purchase of employee
homes are completed in advance of sales to a third party buyer and include a
reasonable holding period.
The AIReS real estate team has developed a home sale process compliance
checklist to assist clients in reviewing their home sale programs. We will continue
to follow the developments of this historic ruling and its impact on the industry to
ensure our clients are kept abreast of these changes. Your AIReS representative
will keep you apprised of this information.
For more details please contact your AIReS team
member. To view Revenue Ruling 2005-74 and
additional information about the ruling please visit our
web site, www.aires.com.
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ERC’s 11 Key Elements
1. Any employee (“EMPLOYEE”) wishing to take
advantage of the Amended Value Option who
lists his/her home with a real estate broker must
include a suitable exclusion clause in the listing
agreement whereby the listing agreement is
terminated upon the sale of the home to either
the employer or the relocation company.
2. Under no circumstances should EMPLOYEE
accept a down payment from any potential
buyer.
3. Under no circumstances should EMPLOYEE
sign an offer presented by any potential buyer.
4. EMPLOYEE enters into a binding contract
(“Contract of Sale”) with his/her employer or the
relocation service company (“PURCHASER’’).
5. After the execution of the Contract of Sale
with PURCHASER and after EMPLOYEE has
vacated the home, all of the burdens and
benefits of ownership pass to the PURCHASER.
6. The Contract of Sale between EMPLOYEE
and PURCHASER at the higher price is
unconditional and not contingent on any
event, including the potential buyer obtaining a
mortgage commitment.
7. Neither EMPLOYEE nor the employer in
the case of a relocation company transaction
exercises any discretion over the subsequent
sale of the home by the PURCHASER.
8. PURCHASER enters into a separate listing
agreement with a real estate broker to assist
with the resale of the property.
9. PURCHASER enters into a seperate
agreement to sell the home to a buyer.
10. PURCHASER arranges for the transfer of
title to the buyer.
11. The purchase price eventually paid by the
buyer has no effect on the purchase price paid
to EMPLOYEE.