T.C. Mem o. 2 01 4- 25 4

UNITED STAT ES TAX COURT

ROSE A. W ODACK, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 80 09 -1 2. Fi le d Dec em be r 17 , 20 14
.
Ro se A. W od ack , pro se. Ri ch ardCh arl es Gros en ic k a ndMarkJ. Mi ll er, fo r res po nd en t.

MEMORANDUM OPINION PARIS , Ju dg e: Res po nd en t d et erm in eda de fic ie nc y inFed eral in co m e ta x of $2 ,60 9 fo r pe ti ti on er’s 2 00 8 t ax ab le y ear. Th e o nl y is su e b efo re the Co urt i s- 2 -

[* 2] whet he r pe ti ti on er i s en ti tl edto th e fi rs t-t im e h om eb uyer cred itun de r se ct io n 36 (a). The Co urt h ol ds th atpe ti ti on er i s n oten ti tl edto th e cre di t.

1 Bac kg ro un d The pa rti es subm itte d thi s ca se ful ly sti pu la te d, wi th ou t tria l, p ur su an t t o Ru le 12 2. Th e p art ie s’ st ip ul at io ns of f act s ar e h ereb y

in co rp or at edby referen ce an d a re fo un d a cco rd in gl y . At th e ti m e o f th e fi li ng of t he pe ti ti on , pet it io ne r res id edinW is co ns in
. On Au gu st3, 1 99 3, p et it io ne r en te redin to a se ll er-f in an cedlan d c on tra ct fo r a tractof l an d a nda res id en ce (p ro pe rty or p ro pe rty at is su e) wi th Howar d Sch li se . Peti ti on er an d M r. Sch li se are n otrel at ed . The l an d c on tra ctst at es :

“ Ven do r se ll s an d a gr ees to co nv ey to Purch as er, upo n the pro m ptan d fu ll pe rfo rm an ce o f th is co ntractby Purch as er, the fol lo win g p ro pe rty, tog ethe r with th e ren ts , pro fit s, fi xtur es an d o th er ap pu rte na ntin te res ts ”, an d the n d es cri be s the pr op erty at i ss ue . Purs uantto th e la ndco nt ract , pet it io ne r ag reedto pa y Mr. Sch li se $2 7,5 00 fo r th e p ro pe rty. T he lan d c on tra ctsp eci fie d tha t p et it io ne r was to pay $1 ,00 0 up on ex ecu ti on of t he co nt ractan d m ak e m on th ly paym en ts of $ 22 2.3 9 o ve r a Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o the Int ern al 1 Rev enue Co de of 1 98 6 a s amend edan d i n e ffec t fo r th e y ear i n i ss ue , andall Ru le refe ren ces are t o the Tax C ou rt Rul es of P ract ic e an d P ro cedur e.- 3 -

[* 3] fiv e-year term . Int eres t ac cru edat t he rat e o f 9%. Th e la ndco nt ractcal le d fo r fu ll pa ym en t o f th e o ut st an di ng ba lanc e b y Sep te m be r 1, 1 99 8, b utst at edth at

“ [t]he pu rch as er m ay

reque stanex te ns io n o f la ndco nt ractforanad di ti on al fiv e y ears pro vi de d the pu rch as er h as gi ve n 3 0 d ay s wri tt enno ti ce o f su chin te nt io n t o ex te ndan d p ro vi de d the in te res t i s re cal cu la te d a t 3 po in ts ab ov e p rime rate a s qu ot edinth e Wall St reetJo urna l, an d the pri nc ip al is am orti zedov er 2 0 years.” Und er the co nt ract , pet it io ne r was requi redto pa y Mr. Sch li se an nu al pr op erty tax es , sp eci al ass es sm en ts , andfir e an d o th er re qu ire d i ns ur an ce pr em iu m s. Mr . Sch li se was t o h ol d the se am ount s i n e sc ro w andap pl y th e pa ym en ts to th e o bl ig at io ns when th ey be cam e due . Pet it io ne r ag reedto ke ep th e

2 im pr ov em en ts onth e p ro pe rty ins ur edinanam ou ntat l eas t equa l t o the ba lanc e owe d und er the co nt ract . Peti ti on er fu rth er ag reedno t t o c omm itwast e, to ke ep th e p ro pe rty in “ go odten an tabl e co nd it io n a ndrep ai r”, t o k eep th e p ro pe rty from
supe rio r li en s, an d t o c om pl y with a ll laws affe ct in g the pro pe rty. In return, pe ti ti on er h adth e ri gh t t o t ak e p os se ss io n o f th e p ro pe rty at th e ti m e o f th e cl os in g an d c ou ldim

pr ov e th e p ro pe rty with ou t p erm is si on .

Ano th er p arag rap h o f th e co nt ractco nt em pl at es th atpe ti ti on er wi ll pa y 2 pr op erty tax es , ass es sm en ts , andin su ran ce p rem iu m s d ire ct ly andde li ve r rec ei pt s sh owi ng su chpa ym en t t o M r. Sch li se up on de m an d.- 4 -

[* 4] The lan d c on tra ctals o v es te d M r. Sch li se with c ert ai n ri gh ts an d ob li ga ti on s. Up on pe ti ti on er’s p ay in g the pri nc ip al an d i nt eres t i n fu ll , Mr. Sch li se ha d the ob li ga ti on to “ ex ecu te an d d el iv er t o P ur ch as er, a Warran ty D eed , infee si m pl e, of th e Pro pe rty, free an d c le ar o f al l l ie ns an d e nc um br an ces ” with c ert ai n ex cep ti on s n otrel ev an t h ere. Mr . Sch li se als o h adth e ri gh t, wh ic h t erm in at edfiv e y ears fro m

clo si ng , to rep ur ch as e th e p ro pe rty at th e o rig in al pu rch as e p ric e if pe ti ti on er p utth e p ro pe rty up forsal e. He als o h adcert ai n ri gh ts up on pe ti ti on er’s de fau lt , in cl ud in g: th e ri gh t o f st ric t fo recl os ur e, th e ri gh t t o s ue for sp eci fic pe rfo rm an ce b y

ful l p aym en t thr ou gh jud ic ia l s al e, th e ri gh t t o s ue at l aw fo r th e en ti re u np ai d p ur ch as e p ric e, th e ri gh t t o i ni ti at e a qui etti tl e act io n, an d the rig ht to ha ve pe ti ti on er eject edfro m th e p ro pe rty andto ha ve a rece iv er ap po in te d t o co ll ectren ts . Mor eo ve r, Mr. Sc hl is e co ul d d em an d fu ll pa ym en t o f th e rem ai ni ng ba lanc e if pe ti ti on er tran sf

erre d a ny int eres t i n the pro pe rty with ou t h is pe rm is si on . Pet it io ne r res id edat t he pro pe rty at is su e, m ad e ti m el y m on th ly paym en ts , an d re ne wedth e la ndco nt ractfor two ad di ti on al fiv e-year term s wi th ou t i ss ue . Mr. Sc hl is e p as se d a way

on Aug us t 2 0, 2 00 6. Mr . Sch li se ’s in te res t i n the pr op erty at i ss ue pa ss edto th e Sch li se Fam il y Trus t. Whenth e co nt ract ’s th ird fiv e-year pe rio d was co m in g t o a n e ndin20 08 , pet it io ne r reque st edth atth e- 5 -

[* 5] Sch li se Fam il y

Trus t re ne w th e co nt ractforan othe r fi ve y ears or u nt il su ch ti m e as sh e co ul d p ro cu re a “ co nv en ti on al m ortg ag e”. Mr. Sc hl is e’s so n’s at to rn ey ch os e n otto ren ew th e co nt ractforan ot he r fi ve y ears . Pet it io ne r th eref

or e d eci de d t o p ay

inful l the ba lanc e o win g upo n 3
ex pi rat io n o f th e co nt ract . The co nt ractexpi redinAug us t 2 00 8. Pe ti ti on er co nt act edAtt orne y

Ph il ip Jo hn so n t o re qu es t the pa y of f fi gu re. On Oct ob er 3 1,

4 20 08 , Mr. Jo hn so n wro te a le tt er s ta ti ng th atth e p ay of f fi gure o n No ve m

be r 20 , 20 08 , was $ 19 ,76 8.3 1. OnNov em be r 18 , 20 08 , pet it io ne r ob ta in eda lo anth ro ug h a p ro m is so ry

no te with R iv ers id e Fi na nc e, In c., fo r $2 5,0 06 .29 . Riv ers id e Fi na nc e pa id$1 9,7 58 .47 by checkto th e “ Sch li se Trus t” ou t o f th es e p ro ceed s. The 5 Sch li se Fam il y

Trus t tran sf

erre d the de edto pe ti ti on er i n No ve m be r 20 08
. 6 On h er Fe de ral in co m e ta x re tu rnfortax ab le y ear 2 00 8, p et it io ne r cl ai m eda fir st -ti m e h om eb uyer cred itof $ 2,6 09 pu rs ua ntto sec ti on 36 (a). Aft er an
It i s u nc le ar wh ethe r th e at to rn ey was a ct in g a s the tru st ee o f th e Sch li se 3 Fam il y Trus t o r as Mr. Sch li se ’s so n’s re pr es en tati ve . It i s u nc le ar wh ethe r Ph il ip Jo hn so n was th e sa m e at to rn ey who ch os e n ot 4 to ex te ndth e co nt ract . Thi s fi gu re equa ls th e $ 19 ,76 8.3 1 tha t M r. Jo hn so n p ro vi de d p et it io ne r as a 5 pa y of f fi gu re fo r Nov em

be r 20 , 20 08 , adju st eddo wnwar d fo r two da y s’ perdi em of $4 .92 each as c al cu la te d b y Mr. J oh ns on . The de edis no t p artof t he reco rd
. 6- 6 -

[* 6] ex am in at io n, re sp on de ntsen t p et it io ne r a n ot ic e o f de fic ie nc y on Decem

be r 28 , 20 11 , di sa ll owi ng th e cre di t. OnMarc h 2 8, 2 01 2, p et it io ne r fi le d ati m el y pe ti ti on inth is Co urt fo r red et erm in at io n. Dis cu ss io n The Co m m is si on er’s d et erm in at io n o f a d efi ci en cy is ge ne ral ly pres um ed
co rrec t, an d the tax pa y er b ears th e b ur de n o f pr ov in g i t i nc orrect . See Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). Mo reo ve r, de du ct io ns an d cred it s ar e m at te rs of l eg is la ti ve gra ce, an d the tax pa y er b ears th e b ur de n o f pr ov in g e nt it le m en t t o a ny deduc ti on s o r cre di ts cla im ed . See INDOPCO, In c. v. Co m m is si on er, 5 03 U.S. 79 , 84 (19 92 ); Ne w Col on ia l Ic e Co . v. Hel ve rin g, 2 92 U.S. 43 5, 4 40 (19 34 ). Purs uantto sec ti on 36 (a), a fi rs t-t im e h om eb uyer of apri nc ip al res id en ce i s en ti tl edto a cred itof 1 0% o f th e p ur ch as e p ric e, no t t o e xc eed$7 ,50 0. Th e ta xp ay er m

us t h av e p ur ch as edth e res id en ce o n o r aft er Ap ril 9, 2 00 8, an d b efo re Ju ly 1, 20 09
. Sec. 3 6( h) . The t erm “ fir st -ti m e h om eb uyer” is de fin edinsec ti on 7 36 (c)( 1) to m ean“ an y

in di vi du al if s uc h i nd iv idua l * * * ha d n o p res en t o wne rs hi p
The cred itwas l at er ex te nd edto ap pl y to pu rch as es m ad e o n o r aft er Ap ril 7 9, 2 00 8, an d b efo re May

1, 2 01 0. Se e se c. 36 (h )(1 ) (as am en de d b y th e Work er, Hom eo wne rs hi p, an d B us in es s As si st an ce Actof 2 00 9, Pub. L. No. 1 11 -9 2, s ec. 11 , 12 3 S ta t. at29 89 ).- 7 -

[* 7] in te res t i n apri nc ip al res id en ce dur in g the 3-year p eri oden di ng on th e d at e o f th e p ur ch as e o f th e p rin ci pa l re si de nc e to whi chth is sec ti on ap pl ie s.” As pe rti ne nt he re, the term

“pu rch as e” i s d efi ne d i n s ect io n 3 6( c)(3 ) to m ean“ an y acqui si ti on ”. The on ly iss ue is whet he r pe ti ti on er p ur ch as edth e p ro pe rty at is su e o n o r aft er Ap ril 9, 2 00 8, an d b efo re J ul y 1, 2 00 9. Pe ti ti on er co nt en ds th atsh e pu rch as edth e p ro pe rty in No ve m be r 20 08 when sh e p ai d the Sch li se Fam il y Trus t th e rem ai ni ng ba lanc e und er the lan d c on tra ctan d re cei ve d the de edto th e pr op erty . Res po nd en t as se rts th atpe ti ti on er p ur ch as edth e p ro pe rty with in th e m ean in g o f se ct io n 3 6( a) o n Au gu st3, 1 99 3, b ecau se (1) un de r W is co ns in law, pe ti ti on er h adequi tabl e ti tl e to th e p ro pe rty up on ex ecu ti on of t he lan d c on tra ct , an d (2 ) pe ti ti on er h adpo ss es si on of t he pro pe rty anden joy edth e b en efi ts an d bu rd en s o f own ers hi p b eg in ni ng in19 93
. Inde te rm in in g wh ena pu rch as e o ccu rredforpu rp os es of t he fir st -ti m e ho m eb uyer cred it , th e Co urt h as lo ok edto when th e b en efi ts an d b ur de ns of
own ers hi p h av e sh ift ed . See Wood s v . Comm is si on er, 1 37 T.C. 15 9, 1 62 (20 11 );
se e al so Bai rdv. Co m

m is si on er, 6 8 T.C. 1 15 , 12 4 (1 97 7) (an al yzi ng when th e tra ns fer o f pr op erty

oc cu rredforpu rp os es of r eal est at e d ep reci at io n a ndm ortg ag e in te res t d educ ti on s) . Gener al ly, a tr an sf er i s co m pl et e upo n the earl ie r of

th e tra ns fer o f ti tl e o r th e sh iftof t he be ne fit s an d b ur de ns of o wne rs hi p. Woo ds v.- 8 -

[* 8] Co m m is si on er, 1 37 T.C. at 1 62 ; Deyoe v . Comm is si on er, 6 6 T.C. 9 04 , 91 0 (1 97 6) (ci ti ng Dett m ers v. Co m m is si on er, 4 30 F.2d10 19 , 10 23 (6t h C ir. 1 97 0) , aff’g Es tate of J oh ns to n v . Comm is si on er, 5 1 T.C. 2 90 (19 68 )). St at e la w det erm in es a ta xp ay er’s p ro pe rty rig ht s. See Uni te d S ta te s v . Nat’l Ban k o f Co m

m erce , 47 2 U.S. 7 13 , 72 2 (1 98 5) ; Pa te l v . Commis si on er, 1 38 T.C. 39 5, 4 04 (20 12 ); Woo ds v. Co m m is si on er, 1 37 T.C. at 1 62 . Fed eral tax co ns eque nc es are d eci de d u nd er Fe de ral law. Pat el v. Co m m is si on er, 1 38 T.C. at 40 4; W oo ds v. Co m

m is si on er, 1 37 T.C. at 1 62 . Accor di ng ly, th e Co urt l oo ks to W is co ns in law t o d et erm in e wha t ri gh ts pe ti ti on er h adinth e p ro pe rty at is su e. The Co urt co ns id ers th e subs tanc e o f th e p ro pe rty rig ht s u nd er St at e la w, in cl ud in g th e b en efi ts an d b ur de ns of s uc h ri gh ts , andno t m erel y th e labe ls th atth e St at e gi ve s t o the se rig ht s o r th e co nc lu si on s i t draws fro m th em . Uni te d S ta te s v . Craft , 53 5 U.S. 2 74 , 27 9 (2 00 2) ; Pa te l v . Comm is si on er, 1 38 T.C. at 4 04
. Am on g the fact or s wh ic h thi s an d o th er co urts ha ve cit edas i nd ic at iv e o f th e b en efi ts an d b ur de ns of o wne rs hi p a re: a rig htto po ss es si on ; an ob li ga ti on to pa y tax es , ass es sm en ts , andch arg es ag ai ns t the pro pe rty; a res po ns ib il ity for in su rin g the pro pe rty; a dut y to m ai nt ai n the pro pe rty; a ri gh t t o i m pr ov e th e pr op erty witho utth e se ll er’s co ns en t; a be ari ng of t he ris k o f lo ss ; an d arig htto ob ta in leg al ti tl e atan y

ti m e b y pa y in g the ba lanc e o f th e fu ll pu rch as e p ric e. See- 9 -

[* 9] Keit h v . Comm is si on er, 1 15 T.C. 60 5, 6 11 -6 12 (20 00 ); Go ldbe rg v. Co m m is si on er, T.C. Mem o. 1 99 7- 74 , aff’d wit ho utpubl is he d o pi ni on , 24 6 F .3d 67 4 (9 thCir . 20 00 ); s ee al so Majo r Rea lty Co rp . & Subs . v. Co m

m is si on er, 7 49 F.2 d 1 48 3, 1 48 7 (1 1t h C ir. 1 98 5) , aff’g i n p art , rev ’g inpa rt T.C. M em o. 1 98 1- 36 1; Grod t & McKay Realt y , Inc . v. Co m m is si on er, 7 7 T.C. 1 22 1, 1 23 7- 12 38 (1 98 1) ; M us gr av e v . Comm is si on er, T.C. Mem o. 2 00 0- 28 5; Berg er v . Co m m is si on er, T.C. Mem o. 1 99 6- 76 ; Sp y gl as s Pa rtn ers v. Co m m is si on er, T.C. Mem o. 1 99 5- 45 2. Whena bu y er, b y vi rtu e o f th es e in ci de nt s, wo ul d b e co ns id eredto ha ve ob ta in edequi tabl e o wne rs hi p und er St at e la w, a sal e wil l ge ne ral ly be d eem edco m pl et edforFed eral tax purp os es . Keith v . Comm is si on er, 11 5 T.C. at61 2. Und er Wisc on si n l aw, th e d oc tri ne of “ equi tabl e co nv ers io n” go ve rn s s al es of pro pe rty. City of Mi lwau ke e v . Greenbe rg , 47 1 N.W.2d 3 3, 3 6 (Wis . 19 91 ); Kall enba chv. Lak e Publ ’ns, In c., 14 2 N.W.2d 2 12 (19 66 ). As s ta te d b y th e W is co ns in Supr em e Co urt:

A lan d c on tra ctve nd orho ld s l eg al ti tl e as sec ur ity forth e unpa idba lanc e o f th e co nt ract , whi le th e la ndco nt ractve nd ee h ol ds equi tabl e ti tl e. Hol di ng equi tabl e ti tl e in effe ctgi ve s the lan d c on tra ct ve nd ee “ fu ll rig ht s” of o wne rs hi p * * * . The l an d c on tra ctve nd ee h as li ab il it ie s g en eral ly attr ib ut edto own ers hi p, s uc h a s p aym en t o f ta xe s, an d i s al so ge ne ral ly liab le as t he own er t o thi rdpa rti es in jure d o n the pr op erty .- 10 -

[* 10 ] Ste in er v . W is . Am . Mut. In s. Co ., 69 7 N.W.2d 4 52 , 45 7 (Wis . 20 05 ) (fn
. refs . om it te d) . Alth ou gh th e v en do r’s in te res t i n the lan d i s n otid en ti cal to th atof
a m ortg ag ee’s, th e v en do r un de r a l an d c on tra ctho ld s b are l eg al ti tl e as sec ur ity fo r th e unp ai d b al an ce. Greenbe rg , 47 1 N.W.2d a t 3 6, 3 9. The Co urt h ol ds th atun de r W is co ns in law p et it io ne r be cam e th e equi tabl e own er o f th e p ro pe rty at is su e as of Au gu st3, 1 99 3, the effe ct iv e d at e o f th e la nd
co nt ract . Peti ti on er o bt ai ne d the be ne fit s an d b ur de ns of o wne rs hi p a t tha t t im e. Sh e h adth e ri gh t o f po ss es si on an d m ad e th e p ro pe rty her p rin ci pa l re si de nc e. As requi redby the co nt ract , pet it io ne r pa idth e rea l p ro pe rty tax es , ass es sm en ts , and in su ran ce. Sh e al so ha d a n o bl ig at io n t o m ai nt ai n the pro pe rty andco ul d i m pr ov e th e p ro pe rty with ou t p erm is si on . Und er Wisc on si n l aw, pe ti ti on er b or e th e ri skof lo ss . See St ei ne r, 69 7 N.W.2d a t 4 57 -4 58 . She als o h adth e ri gh t t o o bt ai n l eg al ti tl e b y pa y in g the rem ai ni ng ba lanc e und er the co nt ract . Andth ou gh pe ti ti on er ha d t o s eekMr. Sch li se ’s perm is si on to tra ns fer any int eres t i n the pro pe rty, the Co urt d oe s n otfin d thi s i nc on si st en t wi th Mr. Sch li se ’s rig ht s as a cred it or . See id . at 4 57 . (“ Hol di ng equi tabl e ti tl e in effec t g iv es th e la ndco ntractve nd ee ‘ful l rig ht s’ of o wne rs hi p, i nc lu di ng th e ab il ity to ‘ se ll , lea se or e nc um

be r th e rea l es ta te subjec t t o the rig ht s o f th e Ven do r un le ss th e co nt ractpro vi de s t o the co ntrary.’ ”- 11 -

[* 11 ] (qu ot in g M art in J. Gree nb erg & Hen ry R. Pin ek en st ei n, Wisc on si n Lan d Co nt ract s 2 (19 86 ))). The de ci si on no t t o re ne w th e co nt ractdi d n otaffe ctpe ti ti on er’s s ta tu s as own er o f th e p ro pe rty, as h er ri gh ts an d o bl ig at io ns un de r St at e la w di d n otch an ge atth atti m e. Mo reo ve r, th ere i s n o i nd ic at io n tha t the be ne fit s an d b ur de ns of
own ers hi p s hi fte d b rie fly to t he Sch li se Fam il y Trus t upo n e xp ira ti on of t he
co nt ractinAug us t 2 00 8 u nt il pe ti ti on er o bt ai ne d fu ll leg al ti tl e in Nov em be r 20 08
. Pet it io ne r co nt in ue d t o re si de at t he pro pe rty andpre su m ab ly w as st il l 8 li ab le fortax es , in su ran ce p rem iu m s, an d the li ke
. Acco rd in gl y , th e Co urt fi nd s tha t fo r pu rp os es of s ect io n 3 6 p et it io ne r

“pu rch as ed ” th e rea l p ro pe rty in que st io n o n Au gu st3, 1 99 3, an d thu s n oton or aft er Ap ril 9, 2 00 8, an d b efo re J ul y 1, 2 00 9, as requi redby sect io n 3 6( h) . On th at reco rd , th e Co urt h ol ds th atpe ti ti on er i s n oten ti tl edto th e fi rs t-t im e h om eb uyer cred itun de r se ct io n 3 6( a) fo r he r ta xabl e y ear 2 00 8.
Eve n i f pe ti ti on er b rie fly los t h er s ta tu s as th e p ro pe rty’ s equi tabl e o wne r 8 be twee n the ex pi rat io n o f th e th irdco nt ractren ewal an d h er p ro cu rem en t o f le ga l ti tl e to th e p ro pe rty, she st il l wo ul d n otqu al ify for the cred itas s he wou ldno t b e co ns id ereda “ fir st -ti m e h om eb uyer” und er tho se cir cu m st an ces . See s ec. 3 6( c)(1 ) (“ The term

‘ fir st -ti m e h om eb uyer’ m ean s an y in di vi du al if s uc h i nd iv idua l (a ndif m arri ed , su chin di vi du al ’s sp ou se ) ha d n o p res en t o wne rs hi p i nt eres t i n apri nc ip al res id en ce dur in g the 3-year p eri oden di ng on th e d at e o f th e p ur ch as e o f th e pr in ci pa l re si de nc e to whi chth is sec ti on ap pl ie s.”)
.- 12 -

[* 12 ] To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red fo r res po nd en t.