Siemers v. Commissioner
| Decision Date | 18 July 1977 |
| Docket Number | Docket No. 6323-75. |
| Citation | 1977 TC Memo 221,36 TCM (CCH) 922 |
| Parties | Herman R. and Irma Siemers v. Commissioner. |
| Court | U.S. Tax Court |
Herman R. Siemers, pro se, 4 Green Wing Teal, Hilton Head Island, S.C. Edward P. Phillips, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in the Federal income taxes of petitioners as follows:
Year Deficiency
1971 ............... $2,267.81
1972 ............... 699.22
Due to concessions of the parties, the only issues remaining for decision are as follows:
1. Whether petitioners are entitled to long-term capital gain on the proceeds they received from the sale of a lot.
2. Whether petitioners are entitled to a sick pay exclusion with respect to Herman R. Siemers in 1972 in the amount of $2,450.51 rather than the $2,556.83 claimed.
Some of the facts have been stipulated. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
Petitioners Herman R. Siemers and Irma Siemers, husband and wife, filed Federal income tax returns for the taxable years 1971 and 1972 with the Southeast Service Center, Chamblee, Georgia. At the time the petition was filed, petitioners resided at Hilton Head Island, South Carolina. Herman R. Siemers will hereinafter be referred to as petitioner.
Petitioner was employed by Sea Pines Plantation Company, hereinafter sometimes referred to as Sea Pines, during the years 1969 through 1972. He was primarily employed as a real estate salesman having a base salary of $10,500 a year with additional income from real estate commissions.
On May 20, 1969, petitioner and Dennie L. McCrary, also an employee of Sea Pines, entered into an agreement with Sea Pines to acquire a parcel of property designated as Lot No. 20, Baynard Cove Road, Baynard Oaks Subdivision. This lot was located in the development of Sea Pines Plantation on Hilton Head Island.
The purchase price for the property was $18,000. Petitioner and McCrary executed a promissory note dated May 20, 1969, in the amount of $18,000 in favor of Sea Pines. The note provided that the principal and interest thereon were due November 20, 1970, with the interest accruing at the rate of eight percent per annum. The note also provided for a late charge in the event such payment was not timely.
The agreement was executed on a standard Sea Pines sales contract. However, in lieu of the standard contract paragraphs numbered three through seven, the parties added certain additional wording as follows:
That same day petitioner and McCrary executed a mortgage to Sea Pines securing the promissory note of $18,000 through a transfer of the property to Sea Pines as security for the note. This mortgage was not recorded.
Sea Pines formally conveyed the lot to petitioner and McCrary on April 29, 1971, by a deed dated and notarized on that date. This deed was recorded in the property records of Beaufort County, South Carolina, on June 2, 1971.
On that same day petitioner and McCrary conveyed the lot to Francis H. May, Jr., for the sales price of $35,000. This deed was also recorded in the public records on June 2, 1971.
The Sellers' Closing Statement dated June 15, 1971, reads as follows:
Debit Credit
Sales Price ............. $35,000.00
10% Sales Commission .... $ 3,500.00
Documentary Stamps ...... 108.50
Note .................... 18,000.00
Interest on Note for 24
months at 8% .......... 2,880.00
24 mo. Pro Rata Taxes ... 83.60
24 mo. Pro Rata Share
Maintenance .......... 100.00
Net Proceeds ............ 10,327.90
__________ __________
$35,000.00 $35,000.00
========== ==========
Neither petitioner nor McCrary paid any of the interest or principal on the $18,000 note until closing. And neither of the sellers paid any of the taxes or maintenance fees on the property until they paid the accumulated taxes and charges at the closing. Ordinarily, Sea Pines required a purchaser of a lot to pay the taxes and maintenance fees as these amounts became due.
On their Federal income tax return for 1971, petitioners reported gain in the amount of $5,163.95 as long-term capital gain from the sale of their interest in the lot.
In 1972, petitioner was absent from work for two periods of time because of illness. The first period was from May 20, 1972 through June 7, 1972. The second period was from July 5, 1972, through December 31, 1972.
On their Federal income tax return for 1972, petitioners claimed the amount of $2,556.83 as an exclusion from income for sick pay. Respondent determined that only $2,450.51 was allowable as a sick pay exclusion and disallowed the amount of $106.32 from the claimed exclusion.
OpinionPetitioner, together with a fellow employee, signed an agreement to acquire a lot from their employer, Sea Pines. The purchase price of $18,000 was in the form of a note secured by a mortgage transferring the property back to the employer. On April 29, 1971, when the resale of the lot was arranged, Sea Pines transferred the lot to the employees who, in turn, the same day transferred the lot to the final buyer. At closing, the employees paid off the note and the interest thereon and the taxes and maintenance fees owed on the property for the period which they had held rights in the property.
Section 12221 requires a holding period of more than six months in order for the gain to qualify as long-term. Respondent contends that petitioner does not meet that test because petitioner was actually the record owner of the property for less than one day.
The date of transfer of legal title is not the sole criteria of acquisition. The date on which "the benefits and burdens or the incidents of ownership of the property" were acquired must also be considered. Hoven v....
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