Opinion ID: 702150
Heading Depth: 2
Heading Rank: 1

Heading: Obligation to Report

Text: 9 Whether the district court properly determined that defendants had an obligation to report profits from the sales to the Retirement Fund is a question of law reviewed de novo. United States v. Buenrostro-Torres, 24 F.3d 1173, 1174 (9th Cir. 1994). Underlying factual determinations are reviewed for clear error. Id. 10 Bontrager and Fisher contend that because the sales agreements with the Retirement Fund granted them an option to repurchase the properties for a fixed sum, the transactions were essentially loans, not sales. We reject the argument. 11 Defendants correctly point out that real estate transactions that appear to be sales may actually constitute loans for income tax purposes. See Blake v. Commissioner, 8 T.C. 546 (1947) (acq.); 2 Boris I. Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts, p 40.7.1 (2d ed. 1990). The substance of the transaction, not the form, determines whether it is a sale or a loan. Green v. Commissioner, 367 F.2d 823, 825 (7th Cir. 1966). Consequently, transactions memorialized by sales agreements or consummated by execution of deeds are not necessarily considered sales for tax purposes. 12 Several courts have treated sales coupled with options to repurchase as loans for tax reporting purposes. Green, 367 F.2d at 823-25 (sale of stock accompanied by repurchase option treated as loan); Patton v. Jonas, 249 F.2d 375 (7th Cir. 1957) (obligation to purchase coupled with option created indebtedness given business context); Blake, 8 T.C. at 552-55 (quitclaim with option to repurchase constituted mortgage). 2 A critical consideration, however, is the intent and understanding of the parties. 3 13 No record evidence indicates that any party, including defendants, viewed the land sales to the Retirement Fund as loans. In fact, the record supports the contrary conclusion. No loan documents were prepared. Each sales contract between VPI and the Retirement Fund stated that the parties agree[] that [the] repurchase option shall not constitute a financing device and Seller shall have no equity interest, rights of redemption, or other rights to the property after the closing ... other than solely as optionee. No record evidence suggests that the Retirement Fund or the defendants viewed the transactions as loans, not sales. The district court properly concluded that defendants had an obligation to report proceeds from the land sales to the Retirement Fund on their 1988 tax returns.