Rev. Rul. 59-165

Advice has been requested concerning the applicability of the documentary stamp tax on conveyances of real property, imposed by section 4631 of the Internal Revenue Code of 1954, to a sheriff's `certificate of sale' delivered to a foreclosure purchaser and to a `certificate of redemption' delivered to a judgment debtor (redemptioner) with respect to realty located in the State of Minnesota.

Section 4361 of the Code, as amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, imposes a stamp tax on each deed, instrument, or writing by which any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to or vested in, the purchaser or purchasers, or any other person or persons, by his or their direction, when the consideration or value of the interest or property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale) exceeds $100.

Section 43.4361-1(a)(2) of the Documentary Stamp Tax Regulations provides that a conveyance of realty subject to an equity of redemption is taxable when made, not when the time for redemption expires. Section 43.4361-1(a)(4)(ii) of the regulations provides that the term `sold' imports transfer of an interest for a valuable consideration, which may involve money or anything of value.

In the foreclosure of a real estate mortgage in Minnesota, the realty subject to the mortgage is sold at public auction by a county sheriff, who then issues and delivers to the foreclosure purchaser a sheriff's certificate of sale, subject to redemption within one year. If redemption is made within one year by the judgment debtor or his grantee, a certificate of redemption is issued.

Under the laws of the State of Minnesota, the purchaser of realty at a sheriff's foreclosure sale does not acquire full title to the property foreclosed at that time but only a conditional right to obtain title to the premises at the expiration of the redemption period provided by law. See Morgan v. Joslyn , 97 N.W. 449. In Minnesota the sheriff's certificate of sale becomes a deed at the expiration of one year. The assignment of the interest or right of the foreclosure purchaser during the redemption period is a conveyance of real estate within the meaning of the recording act. If such interest or right is assigned, the title, when it passes by lapse of time and nonredemption, vests in the assignee of such interest. See Berryhill v. Smith , 61 N.W. 144.

Section 507.01, Chapter 507, of the Minnesota Statutes provides that the term `purchaser' embraces every person to whom any estate or interest in real estate is conveyed for a valuable consideration and every assignee of a mortgage, lease, or other conditional estate. The word `conveyance' includes every instrument in writing whereby any interest in real estate is created, aliened, mortgaged, or assigned, or by which the title thereto may be affected in law or in equity.

In view of the foregoing, in Minnesota a foreclosure purchaser takes such an interest in the real estate as to constitute an estate in such realty. The fact that legal title does not pass from the mortgagor to the purchaser until the expiration of the redemption period results in there being two estates in the same land at the same time, a fee-simple title in the mortgagor and a separate and distinct estate or interest in the foreclosure purchaser. The purchaser at the sale acquires an interest in the real estate which is subject to defeasance.

There is no provision of law or regulations which restricts the application of section 4361 of the Code to instruments conveying estates in fee simple. Instruments that transfer any interest in the ownership of real property are subject to the documentary stamp tax. The fact that in the State of Minnesota a sheriff's certificate of sale does not convey a fee-simple estate is immaterial in determining its liability for the tax imposed by this section of the Code.

Accordingly, with respect to realty located in the State of Minnesota, since in a foreclosure sale an interest in real estate passes to the foreclosure purchaser upon delivery to him of the sheriff's certificate of sale, it is held that the documentary stamp tax imposed by section 4361 of the Code is applicable to the sheriff's certificate of sale at the time of delivery of such certificate and not when the redemption period expires. It is further held that, since the certificate of redemption conveys, for a valuable consideration, the interest in the real estate acquired by the foreclosure purchaser, the subsequent delivery of a certificate of redemption to the judgment debtor or redemptioner is also subject to the documentary stamp tax.