Rev. Rul. 66-375

Advice has been requested whether the documentary stamp tax on conveyances of realty sold applies to deeds conveying real property under the circumstances set forth below.

In operating its loan guaranty program, the Veterans' Administration (hereinafter referred to as the Administration), an agency of the United States Government, acquires real property following default and foreclosure proceedings. Subsequently, the Administration enters into an installment payment contract for sale of the property to a person, hereinafter referred to as A .

Under this type of contract, the Administration retains title to the property, and if A defaults on the contract he loses all rights to, and interest in, the property. The contract requires A to make installment payments until he has a substantial interest in the property, at which time the Administration will deliver a deed to him and accept a mortgage for the unpaid amount of the sale price.

However, in order to avoid continuing to hold a large portfolio of real property interests, the Administration has a program under which the installment contract is sold to a person, hereinafter referred to as B , under a guaranty arrangement. Under this arrangement, B pays to the Administration a specified amount for which he receives a deed conveying title to the property and acquires the right to receive the installment payments from A . If the payments under the installment contract are completed and the real property is conveyed to A under the contract, the deed delivered by B to A is taxable based on the consideration paid for the property as evidenced by the installment contract.

Under the guaranty arrangement, if A defaults on his installment contract, the Administration must, upon demand by B , buy back the installment contract for an amount equal to the unpaid balance thereof. However, B is not required to resell the contract to the Administration and reconvey the property thereto. If B does not choose to invoke the guaranty, he will own the property free and clear, and may retain or dispose of it as he wishes. If the contract is resold to the Administration, B executes and delivers to the Administration a deed conveying title to the property.

Specifically, the question presented is whether the deeds of conveyance from the Administration to B and from B to the Administration are subject to the tax imposed by section 4361 of the Internal Revenue Code of 1954.

Section 4361 of the Code imposes a 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 the sale) exceeds $100.

Section 47.4361-1 of the Documentary Stamp Tax Regulations provides, in part, that the tax is limited to conveyances of realty sold and does not apply to other conveyances. The tax attaches at the time the deed or other instrument of conveyance is delivered, irrespective of the time when the sale is made. The term `sold' imports a transfer of an interest for a valuable consideration, which may involve money or anything of value.

Section 47.4361-2(b)(6) of the regulations cites several examples of conveyances not subject to tax, including `a contract for the sale of real property, if the contract does not vest legal title.'

In the instant case, the contract between the Administration and A is designed to avoid a transfer of the property to A until he has acquired a substantial interest therein. On the other hand, the purpose of the transaction between the Administration and B is to effect a sale of the real property to the latter.

Accordingly, it is held that deeds of conveyance from the Administration to B and from B to the Administration are subject to the documentary stamp tax imposed by section 4361 of the Code. The basis of the tax in each case is the net consideration paid by the transferee.

However, it should be noted that, under the provisions of section 4384 of the Code, the Administration is relieved from liability for the tax. Under the dual liability imposed by that section, B is liable for the tax on each conveyance.