Woods v. COMMISSIONER OF INTERNAL REVENUE, 27484-09.

• Citation: 137 T.C. 159,137 T.C. No. 12
• Decision Date: 27 October 2011
• Docket Number: No. 27484-09.,27484-09.
• Court: United States Tax Court
• Parties: JOSEPH MELVILLE WOODS, JR., Petitioner,<BR>v.<BR>COMMISSIONER OF INTERNAL REVENUE, Respondent.

137 T.C. No. 12

JOSEPH MELVILLE WOODS, JR., Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 27484-09.

10-27-2011

[137 T.C. No. 2]

Joseph Melville Woods, pro se.

Christopher M. Menczer, for respondent.

HAINES, Judge.

Respondent determined a deficiency in petitioner's 2008 Federal income tax of $7,500. The sole issue for decision is whether petitioner is entitled to the first-time homebuyer tax credit (FTHBC) for 2008 pursuant to section 36.^[1]

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, together with the attached exhibits, is incorporated herein by this reference. At the time petitioner filed his petition, he resided in Texas.

[137 T.C. No. 3]

Petitioner works in Rice, Texas, and has been working there since 1999. Throughout most of that time, petitioner lived in Dallas, which is approximately 50 miles from Rice. Because of the distance and the commuting cost, petitioner began looking for a permanent place to live in Rice. In 2008 petitioner found a house for sale in Rice (the Rice house). Petitioner also learned through an advertisement that he might be eligible for the FTHBC. Petitioner confirmed the possibility of the FTHBC through his own research on the Internal Revenue Service (IRS) Web site and discussions with his tax preparer.

On December 18, 2008, petitioner entered into an agreement for deed to purchase (contract for deed) the Rice house from Capital T Properties (Capital T) for $75,000 and took possession of the house. Petitioner paid Capital T an initial downpayment of $2,000 and agreed to pay the balance of the purchase price together with 7 percent interest over 184 months. Although petitioner took possession of the Rice house under the contract for deed, legal title does not transfer from Capital T to petitioner until petitioner has paid the final monthly installment. Petitioner is required to pay all property taxes attributable to the Rice house for all periods after December 18, 2008.

The Rice house required renovations before being ready for occupancy. Petitioner planned to use the FTHBC to fund the

[137 T.C. No. 4]

necessary renovations and could not afford the renovations without the credit. In January 2009 petitioner claimed the FTHBC on his 2008 Federal income tax return. In February 2009 petitioner received $7,500 for the FTHBC.^[2] As a result, in March 2009 renovations on the Rice house began.

During the period of renovation, petitioner lived in a rental house in Dallas until a fire left it uninhabitable. He has since lived with his daughter in Dallas. On August 20, 2009, the IRS sent petitioner a notice of deficiency disallowing the FTHBC. As a result, petitioner suspended renovations of the Rice house. On November 18, 2009, the Court filed petitioner's timely petition challenging respondent's determination with respect to the FTHBC.

OPINION

I. FTHBC

Section 36(a) provides a refundable tax credit to a first-time homebuyer of a principal residence in the United States. In 2008 the amount of the credit was 10 percent of the purchase price of the residence, with a limitation of $7,500. Sec. 36(b)(1)(A). Section 36(c)(1) defines a first-time homebuyer as any individual (and if married, the individual's spouse) having

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no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence. Section 36(c)(2) provides that the term "principal residence" has the same meaning as used in section 121.

Respondent contends that petitioner fails to qualify for the FTHBC for two reasons. First, respondent argues that petitioner took possession of the Rice house under contract for deed and has not acquired legal or equitable title of the property. Next, respondent argues that even if petitioner satisfies the "purchase" requirement of section 36, the Rice house was not petitioner's "principal residence" in 2008.

II. Whether for Federal Tax Purposes Petitioner "Purchased" the Rice House

We first address the issue of whether petitioner "purchased" the Rice house in 2008.^[3] To decide when a transfer is complete for tax purposes, we examine all the surrounding facts and circumstances, no single one of which is controlling. Baird v. Commissioner, 68 T.C. 115, 124 (1977). The focus of our inquiry, however, is on when the benefits and burdens of ownership have shifted. Id. Generally, a transfer is complete upon the earlier of the transfer of title or the shift of the benefits and burdens

[137 T.C. No. 6]

of ownership. Deyoe v. Commissioner, 66 T.C. 904, 910 (1976) (citing Dettmers v. Commissioner, 430 F.2d 1019, 1023 (6th Cir. 1970), affg. Estate of Johnston v. Commissioner, 51 T.C. 290 (1968)).

In a Federal tax controversy, State law controls the determination of the taxpayer's interest in the property, and the tax consequences are then determined under Federal law. United States v. Natl. Bank of Commerce, 472 U.S. 713, 722 (1985) (and cases cited and quoted therein). Accordingly, to determine the property rights transferred to petitioner from Capital T pursuant to the contract for deed, we must look to Texas property law.

We reviewed a similar transaction under Texas property law in Musgrave v. Commissioner, T.C. Memo. 2000-285. In Musgrave, the taxpayers signed a contract for deed to sell a property to a church in a bargain sale and claimed a charitable contribution deduction for the difference between the fair market value and the sale price of the property. The taxpayers agreed to sell and the church agreed to purchase the property for $152,500, to be paid in...