Following publication of Rev. Rul. 2005-74 in late 2005, Worldwide ERC® asked its Coalition Public Policy Committee to consider whether the ruling affected ERC®’s 2001 recommendation that two deeds be used in relocation home sale transactions.
A Task Force appointed by the Committee has carefully considered the deeding procedures and the laws and practices in the states, the District of Columbia, and some other relevant jurisdictions. As Worldwide ERC® has previously advised, publication of Rev. Rul. 2005-74, in which the IRS held that use of a blank deed is consistent with a sale having occurred for federal income tax purposes, eliminates a principal reason for Worldwide ERC®’s 2001 recommendation that two deeds be used in all relocation home sale transactions, at least where companies are otherwise following the requirements of the revenue ruling. (that is, the company’s program is generally consistent with Worldwide ERC’s “Eleven Key Elements”).
Consequently, for programs administered in accordance with the procedures approved in the ruling the 2001 recommendation to use two deeds is no longer applicable for federal tax purposes. Use of a blank deed to pass title is perfectly appropriate from a federal tax standpoint. Companies whose programs deviate in some relevant way from the procedures approved in Rev. Rul. 2005-74, however, may still find taking title by deed a favorable factor, and may wish to continue to do so in all states.
According to Worldwide ERC® Tax Counsel, Peter K. Scott, “For those who conclude that using two deeds is not necessary for federal tax purposes, state issues must still be considered. Even prior to the 2001 two-deed recommendation there were some states in which two deeds were commonly used, for a number of reasons. Generally, those reasons still exist.”
Scott also noted that other than the federal tax issue, much of the discussion in Worldwide ERC’s 2001 white paper, "Taking Title by Deed," which discusses the advantages and disadvantages of using two deeds, remains relevant. “These include cost, issues of state nexus, and legal protections gained by taking title,” said Scott. “In addition, there are a number of issues that arise in particular states or transactions that should be considered.”
The Task Force determined that in eight states, it is common practice, for various reasons, to use two deeds without regard to federal tax issues. Those states are Delaware, Kentucky, Maryland, Nevada, New York, Oklahoma, Texas, and Washington. The Task Force analysis includes the reasons commonly cited for use of two deeds in each of those states.
The Task Force analysis also includes a list of states in which some companies choose to use two deeds because there is little additional cost in doing so (no transfer tax, or only one tax even if two deeds are used), and a list of relevant factors that should be considered by companies and their tax and legal advisors in making decisions in other states.
The analysis of state issues by the Task Force is available on Worldwide ERC’s Coalition Tax & Legal MasterSource in the tax materials under the topic “Blank Deed: State Issues, and Use after Rev. Rul. 2005-74.” The 2001 white paper on two deeds also is included on the site.
Worldwide ERC® cautions that the Task Force analysis is intended only as general information, and that members should consult their own tax and legal advisors in making decisions as to whether or not to use two deeds, and if so, in which jurisdictions.