SCOTUS Reports

Tag: Home Sale Losses

  • Keener v. Commissioner, 59 T.C. 302 (1972): Employer Reimbursement for Home Sale Losses as Taxable Income

    Keener v. Commissioner, 59 T. C. 302 (1972)

    Payments by an employer to an employee to reimburse losses on the sale of a personal residence due to a job transfer are taxable as compensation under section 61(a) of the Internal Revenue Code.

    Summary

    In Keener v. Commissioner, the U. S. Tax Court ruled that payments made by the Insurance Company of North America (INA) to Seth Keener to cover losses on his home sale, following his job transfer, were taxable income. Keener had entered into INA’s Appraisal Plan, which promised to compensate for any shortfall between the home’s sale price and its appraised value. The court determined that these payments were additional compensation under IRC section 61(a), rejecting Keener’s argument that the payments represented a non-taxable sale to INA. The decision underscores that employer reimbursements for personal losses related to employment transfers are taxable as income.

    Facts

    Seth E. Keener, Jr. , an employee of the Insurance Company of North America (INA) in Harrisburg, PA, was transferred to Philadelphia in 1966. Keener and his wife Jeanne participated in INA’s Appraisal Plan, which appraised their Harrisburg home at $34,300. The plan required them to list their home for sale and reimburse them for any difference between the net sale price and the appraised value. Keener’s home was sold in June 1967 for $26,000, resulting in a loss of $8,300, which INA covered. Additionally, INA paid for selling and real estate expenses related to the sale.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in the Keeners’ 1967 income tax due to the inclusion of the INA payments as taxable income. The Keeners petitioned the U. S. Tax Court for a redetermination of this deficiency. The Tax Court, after reviewing the facts and applicable law, upheld the Commissioner’s determination, ruling that the payments were taxable income.

    Issue(s)

    1. Whether payments made by INA to the Keeners in 1967, representing a reimbursement for loss on the sale of their residence, are income under section 61(a), I. R. C. 1954.
    2. Whether selling expenses and real estate expenses paid by INA on behalf of the Keeners are income under section 61(a), I. R. C. 1954.

    Holding

    1. Yes, because the payments were made to induce Keener to move and to ensure his continued high-quality service, thus constituting compensation for services under section 61(a).
    2. Yes, because these expenses were paid for the Keeners’ benefit and are therefore taxable as compensation under section 61(a).

    Court’s Reasoning

    The court reasoned that the payments were compensatory in nature, designed to relieve Keener of the economic burden of selling his home due to his job transfer. The court rejected the argument that the payments were part of a sale to INA, emphasizing that Keener retained the burdens of homeownership until the sale and that INA acted as an agent, not a purchaser. The court cited precedents such as William A. Lull and Bradley v. Commissioner, which established that employer reimbursements for losses on home sales due to employment transfers are taxable income. The court also noted that indirect moving expenses paid by an employer are taxable, further supporting its conclusion.

    Practical Implications

    This decision affects how employer-provided benefits related to job transfers are treated for tax purposes. Employers and employees must consider that reimbursements for losses on the sale of personal residences and payments for related expenses are taxable as income. This ruling may influence how companies structure their employee transfer policies to account for the tax implications. Legal practitioners should advise clients on the tax consequences of such arrangements, and future cases involving similar employer benefits will likely reference Keener for guidance on the tax treatment of reimbursements for personal losses.

  • Lull v. Commissioner, 51 T.C. 841 (1969): Taxability of Employer Reimbursements for Moving Expenses and Home Sale Losses

    Lull v. Commissioner, 51 T. C. 841 (1969)

    Employer reimbursements for moving expenses and home sale losses are taxable as additional compensation to the employee, except for direct costs related to moving the employee, family, and household goods.

    Summary

    In Lull v. Commissioner, the U. S. Tax Court ruled on the tax treatment of reimbursements received by employees from IBM for moving and living expenses, as well as payments to cover losses on home sales due to employer-initiated transfers. The court held that these reimbursements, except for direct moving costs, were taxable income to the employees. The decision clarified that payments for incidental moving expenses and home sale losses were considered additional compensation, not part of the ‘amount realized’ upon sale, and thus taxable. This ruling emphasizes the distinction between direct moving costs, which are excludable, and other reimbursements, which are taxable.

    Facts

    William A. Lull and William H. Simpson were employees of IBM who were transferred to different locations. IBM reimbursed them for various moving expenses, including mover’s fees, airfares, room and meals, and other costs. Additionally, IBM’s Home Guarantee Policy covered the difference between the sale price and appraised value of their homes, which was paid to the employees upon sale. Lull received reimbursements in 1960 and 1961, while Simpson received them in 1959 and 1961. The employees did not report these reimbursements as income on their tax returns.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in the petitioners’ income taxes, asserting that certain reimbursements were taxable income. The cases were consolidated due to common issues and were heard by the U. S. Tax Court. The court’s decision was issued on February 26, 1969.

    Issue(s)

    1. Whether reimbursements for indirect moving expenses, such as babysitting, laundry, and house-hunting trips, are includable in the employees’ gross income?
    2. Whether payments under IBM’s Home Guarantee Policy, covering the difference between the sale price and appraised value of the employees’ residences, are includable in gross income?

    Holding

    1. Yes, because such reimbursements are considered additional compensation and not deductible as business expenses.
    2. Yes, because these payments are considered additional compensation and not part of the ‘amount realized’ upon the sale of the residence.

    Court’s Reasoning

    The court reasoned that payments by an employer to an employee, which are compensation for services, are taxable income under Section 61 of the Internal Revenue Code. The court distinguished between direct moving costs, which are excludable from income, and indirect expenses, which are considered personal or living expenses and thus taxable. The court relied on previous cases like Bradley, Ferebee, and Pederson to support its decision that reimbursements for indirect expenses and home sale losses are additional compensation. The court rejected the petitioners’ argument that these payments should be treated as part of the ‘amount realized’ upon the sale of their homes, citing that such payments were made pursuant to the employment contract, not the sales contract. The court also noted that nonrecognition of gain under Section 1034 did not apply as the payments were not part of the sale proceeds.

    Practical Implications

    This decision impacts how employer reimbursements for moving expenses and home sale losses are treated for tax purposes. Employers and employees should be aware that only direct moving costs (e. g. , transportation of the employee, family, and household goods) are excludable from income. Other reimbursements, including those for indirect moving expenses and home sale losses, are taxable as additional compensation. This ruling influences how companies structure their relocation policies and how employees report such income on their tax returns. Subsequent cases and IRS rulings have followed this precedent, reinforcing the tax treatment of such reimbursements.