Bostedt v. Comm'r of Internal Revenue, Docket No. 5395-75.

CourtUnited States Tax Court
Writing for the CourtIRWIN
Citation70 T.C. 487
PartiesEARL C. BOSTEDT and JOY E. BOSTEDT, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
Decision Date27 June 1978
Docket NumberDocket No. 5395-75.

70 T.C. 487

EARL C. BOSTEDT and JOY E. BOSTEDT, PETITIONERS
v.
COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 5395-75.

United States Tax Court

Filed June 27, 1978.


Petitioners sold their motel business. As part of the transaction, the purchaser paid petitioners' sales commission liability. Held, the assumption by the purchaser of the seller's sales commission liability is treated as a payment in the year of sale for purposes of the 30-percent limitation of sec. 453(b)(2)(A). Wagegro Corp. v. Commissioner, 38 B.T.A. 1225 (1938), followed; Irwin v. Commissioner, 390 F.2d 91 (5th Cir. 1968), revg. 45 T.C. 544 (1966); United States v. Marshall, 357 F.2d 294 (9th Cir. 1966); Horneff v. Commissioner, 50 T.C. 63 (1968), vacated and remanded by unpublished order (3d Cir. 1969), distinguished.

[70 T.C. 487]

Robert N. Kolb, for the petitioners.

William E. Saul, for the respondent.

IRWIN, Judge:

The Commissioner determined a deficiency in petitioners' Federal income taxes for the calendar year 1971 in the amount of $8,492. Due to concessions by petitioners, the only issue remaining for decision is whether petitioners' sale of their

[70 T.C. 488]

motel business qualifies for the installment method of reporting under section 453.1

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of facts, along with attached exhibits, are incorporated herein by this reference.

The petitioners, Earl C. and Joy E. Bostedt, husband and wife, resided in Santa Cruz, Calif., at the time of filing their petition herein. They filed their joint Federal income tax return for the calendar year 1971 with the Internal Revenue Service Center in Fresno, Calif. Since Joy E. Bostedt is a party hereto solely by reason of having filed a joint income tax return with her husband for the year in issue, Earl C. Bostedt alone will hereafter be referred to as petitioner.

On February 2, 1971, petitioner sold a motel, known as the “Casa Blanca,” and elected the installment method of reporting gain from such sale under section 453. The total sales price for the motel was approximately $282,000 and was allocated as follows: $6,500 to the personal property, $250 to goodwill, $56,250 to real property, and the remaining $219,000 to improvements. The adjusted bases of these components were $9,050, 0, $38,735, and $92,275, respectively. The cost incurred by petitioner in selling the property was $13,408, of which $13,100 was allocable to the land, improvements, and goodwill (based upon sales price ratios). The remainder was allocable to the personalty. Of the total selling expenses, $12,750 represented a real estate brokerage commission payable to Carbray & Co.

Part of the sales proceeds consisted of an assumption by the buyers of two notes encumbering the motel property, including improvements, in the amounts of $151,116.51 and $37,768.99. In addition, the sellers received net cash in the amount of $36,318. The remainder of the proceeds consisted of an unsecured personal note to the seller in the amount of $4,000, a third mortgage note to the seller in the amount of $40,364.50, and a fourth mortgage note in the amount of $12,750 to Carbray & Co. in satisfaction of the sales commission owed by petitioner to the brokers in the transaction.

[70 T.C. 489]

In reporting the sale on his income tax return, petitioner elected the installment method of reporting the gain realized, utilizing the following computation:

+----------------------------------------------------+
                ¦(1) Portion of sales price allocable to¦¦ ¦
                +---------------------------------------++-----------¦
                ¦land, improvements, and goodwill2 ¦¦$275,500.00¦
                +----------------------------------------------------+
                
(2) Amount received in year of sale
                (a) Cash 35,482.69
                (b) Mortgages assumed 188,885.50
                Less: Adjusted basis
                (including selling
                expenses allocable to
                these assets)3 144,110.00
                Excess of mortgages
                assumed over adjusted basis 44,775.50
                Total proceeds deemed received in year of sale 80,258.19
                
Thus, under petitioner's computation, the proceeds deemed received in the year of sale amount to less than 30 percent of the selling price.

Respondent, on the other hand, recomputed the transaction as follows:

+----------------------------------------------------+
                ¦(1) Portion of sales price allocable to¦¦ ¦
                +---------------------------------------++-----------¦
                ¦land, improvements, and goodwill ¦¦$275,500.00¦
                +----------------------------------------------------+
                
(2) Amount received in year of sale
                (a) Cash 35,482.69
                (b) Liability of petitioner
                paid out of sales proceeds 12,456.75
                (c) Mortgages assumed 188,885.50
                Less: Adjusted basis (including
                selling expenses
                allocable to these assets) 144,110.00
                Excess of mortgages assumed
                over adjusted basis 44,775.50
                
 92,714.94
                
Under respondent's method of computation, petitioner is deemed to have received proceeds in excess of 30 percent (34 percent) of the sales price in the year of sale and cannot qualify for the...

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8 practice notes
  • Blitzer v. United States, No. 426-76.
    • United States
    • Court of Federal Claims
    • July 14, 1982
    ...which is not deductible except by way of depreciation over the life of the project. But, as the Tax Court stated in Heyman, supra, 70 T.C. at 487, "We must decide this case, however, on its facts and the lack of actual payment remains a fact regardless of any assertions as to how thing......
  • Crown v. Comm'r of Internal Revenue , Docket No. 1588-77.
    • United States
    • United States Tax Court
    • September 17, 1981
    ...429 U.S. at 579-580; Yamamoto v. Commissioner, 73 T.C. 946, 954 (1980), on appeal (CA9, Sept. 12, 1980); Heyman v. Commissioner, 70 T.C. at 487. [ Franklin v. Commissioner, supra at 184. Emphasis added.] It is clear that petitioner's collateralized note to American National, while incontest......
  • Ehlert v. Commissioner, Docket No. 21226-81.
    • United States
    • United States Tax Court
    • September 16, 1985
    ...assumption of or cancellation of the seller's liabilities as part of the bargained-for exchange. Bostedt v. Commissioner Dec. 35,237, 70 T. C. 487, 490-492 (1978) and cases cited therein. See also Sallies v. Commissioner Dec. 41,346, 83 T. C. 44, 53-55 (1984).4 In particular, the buyer's as......
  • Franklin v. Comm'r of Internal Revenue , Docket No. 9657-78.
    • United States
    • United States Tax Court
    • August 4, 1981
    ...429 U.S. at 579-580; Yamamoto v. Commissioner, 73 T.C. 946, 954 (1980), on appeal (9th Cir., Sept. 12, 1980); Heyman v. Commissioner, 70 T.C. at 487.A. Payments to Participating Banks The loan to Franklin was made by Capital National; the 1972 principal note, the 1973 principal renewal note......
  • Request a trial to view additional results
8 cases
  • Blitzer v. United States, No. 426-76.
    • United States
    • Court of Federal Claims
    • July 14, 1982
    ...which is not deductible except by way of depreciation over the life of the project. But, as the Tax Court stated in Heyman, supra, 70 T.C. at 487, "We must decide this case, however, on its facts and the lack of actual payment remains a fact regardless of any assertions as to how thing......
  • Crown v. Comm'r of Internal Revenue , Docket No. 1588-77.
    • United States
    • United States Tax Court
    • September 17, 1981
    ...429 U.S. at 579-580; Yamamoto v. Commissioner, 73 T.C. 946, 954 (1980), on appeal (CA9, Sept. 12, 1980); Heyman v. Commissioner, 70 T.C. at 487. [ Franklin v. Commissioner, supra at 184. Emphasis added.] It is clear that petitioner's collateralized note to American National, while incontest......
  • Ehlert v. Commissioner, Docket No. 21226-81.
    • United States
    • United States Tax Court
    • September 16, 1985
    ...assumption of or cancellation of the seller's liabilities as part of the bargained-for exchange. Bostedt v. Commissioner Dec. 35,237, 70 T. C. 487, 490-492 (1978) and cases cited therein. See also Sallies v. Commissioner Dec. 41,346, 83 T. C. 44, 53-55 (1984).4 In particular, the buyer's as......
  • Franklin v. Comm'r of Internal Revenue , Docket No. 9657-78.
    • United States
    • United States Tax Court
    • August 4, 1981
    ...429 U.S. at 579-580; Yamamoto v. Commissioner, 73 T.C. 946, 954 (1980), on appeal (9th Cir., Sept. 12, 1980); Heyman v. Commissioner, 70 T.C. at 487.A. Payments to Participating Banks The loan to Franklin was made by Capital National; the 1972 principal note, the 1973 principal renewal note......
  • Request a trial to view additional results

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