Prepared by Worldwide ERC® Tax Counsel, Peter K. Scott
Peter Scott Associates
Current as of January, 2017
The Assigned Sale process is rarely used in current relocation home purchase programs, because it has adverse tax consequences compared to the Amended Value process.
If the employee uses a real estate broker to find a buyer at a higher price, and the employee signs a sales contract with the buyer, the employee becomes legally obligated at that moment to pay the broker a sales commission if the house is ultimately sold to the buyer, and in some cases even if it is not. Under the contract, the employee is probably obligated to pay other seller closing costs as well.
Assignment of the sales contract (including all benefits and burdens, and the obligation to pay a commission) to a relocation firm in the typical assigned sales procedure results in the relocation firm paying an obligation of the employee. An exclusion clause in the listing contract between the employee and the broker does not help in this situation, because the relocation firm or the employer, by agreeing to the assignment, has taken over the burdens and benefits of an executed sales contract, including the obligation to pay the broker a commission. Thus, payment of the real estate commission and other closing costs by the relocation firm or employer should be considered taxable to the employee as an indirect reimbursement of the employee’s moving expenses pursuant to §82 of the Internal Revenue Code.
Moreover, the procedures followed in an assigned sale are not consistent with those approved by IRS in situations 1 and 2 of Rev. Rul. 2005-74, but have many characteristics in common with the procedures disapproved in situation 3 of the ruling. Consequently, nothing in the new ruling provides any support for an assigned sale.
Thus, although there is no authority directly on point, the current position of the IRS is that Assigned Sales result in taxable income to the employee.