Real estate transactions involving transferors other than corporations generally must be reported under the rules on reporting by brokers. Thus, the person responsible for reporting these transactions generally must file an information return and provide a statement to the payee reporting the gross proceeds of the transaction. Code Section 6045(e). See Section 618.4(b) for a discussion of who is required to report. However, sales or exchanges of residences for $250,000 or less ($500,000 or less for married sellers) are not required to be reported if the person required to report receives written assurance from the seller (or the person relinquishing the residence in an exchange) that the residence is the seller's principal residence, that there is no federally subsidized financing, the full amount of the proceeds are excludable from income, and, in the case of married sellers, that the sellers are married. Code Section 6045(e)(5). See Section 618.4(a) for discussion of transactions and amounts that must be reported.

The return is required to include the name, address, and taxpayer identification of the transferor; a general description of the real estate transferred, including its complete address; the date of closing; to the extent required by the form, the entire gross proceeds of the transaction or, in the case of multiple transferors, the gross proceeds allocated to the transferor; the name, address, and taxpayer identification number of the person required to report; and the portion of any real property tax that is treated as tax imposed on the purchaser. <35> The information statement is required to include the name, address and phone number of the information contact of the person required to make the return, the information required to be shown on the return, and a legend prescribed by the IRS in Reg. Section 1.6045-4(m)(1) or on the form. <36>

OBSERVATION: The IRS is authorized to require the return and statement to include an indication that the transferor received or will or may receive property or services as part of the consideration for the transaction, or in satisfaction of an obligation having a stated principal amount; an indication that the transferor may receive in connection with a contingent payment transaction an amount of gross proceeds that cannot be determined with certainty and therefore is not included in the gross proceeds, as discussed in Section 618.4(a)(2)) ; and an indication that any of the seller's financing was federal subsidized indebtedness, but has not done so. <37> The person required to report is required to solicit the transferor's taxpayer identification number at or before the time of closing. If it complies with this requirement, the person responsible for reporting is not subject to penalties for failure to include the number. Reg. Section 1.6045-4(l).

A person required to report under this provision is not permitted to charge any customer for filing the return, but is permitted to take the costs into account in determining its charge for performing services in connection with the closing. Code Section 6045(e).

(a)(1) Transfers that must be reported

A real estate transaction for purposes of the reporting requirements is atransaction by a non-corporate transferor that consists in whole or in part of the sale or exchange (whether taxable or non-taxable) of any present or future ownership interest in improved or unimproved land, air space, any inherently permanent structure, including any residential, commercial or industrial building, any condominium unit, including fixtures and common elements, or any stock in a cooperative housing corporation for money, indebtedness, property, or services. Reg. Section 1.6045-4(b). Sales or exchanges for this purpose includes involuntary conversions. Instructions for Forms 1099, 1098, 5498, and W-2G (1999).

Ownership interests include fee simple interest, life estate, reversions, remainders, and perpetual easements, as well as previously created rights to possession or use for all or a portion of any particular year, such as leaseholds, easements, or timeshares, with a remaining term of at least 30 years, including any period for which the rights can be renewed at the option of the holder. Ownership interests do not include options to acquire real estate or interests in it. Reg. Section 1.6045-4(b)(2).

Sales or exchanges of residences for $250,000 or less ($500,000 or less for married sellers) are not required to be reported if the person required to report receives written assurance from the seller (or the person relinquishing the residence in an exchange) that the residence is the seller's principal residence, that there is no federally subsidized financing, the full amount of the proceeds are excludable from income, and, in the case of married sellers, that the sellers are married. Code Section 6045(e)(5). Rev. Proc. 98-20, 1998- 7 I.R.B. 32, provides a sample certification that can be used for this purpose.

The following transfers also are exempt from reporting:

(1) transfers that are not sales or exchanges, such as gifts or bequests;

(2) non-taxable transfers between spouses under Code Section 1041 (see Ch. 85)

(3) financings or refinancings of real estate that are not related to the acquisition of real estate;

(4) transactions in which it can be determined with certainty that the total consideration received or to be received in connection with the transfer is less than $500 in value.

(5) Transfers in full or partial satisfaction of a debt secured by the property, including foreclosures, transfers in lieu of foreclosures, and abandonments. <38>

In addition, transfers involving the following types of property are exempt from reporting, as long as the transfer is not related to the sale or exchange of real estate that is subject to reporting:

(1) an interest in surface or subsurface natural resources or crops, whether or not severed from the land;

(2) a burial plot or vault; or

(3) the sale of a manufactured dwelling unit such as a mobile home that is not fixed to a foundation at the time of sale. Reg. Section 1.6045-4(c)(2).

Finally, in addition to transfers by corporations, reporting is not required for transactions in which the transferor is a governmental unit or a person that certifies that it has sold or exchanged during either of the prior two calendar years, or previously sold or exchanged during the current calendar year, or as of the date of closing, reasonably expects to sell or exchange during the current calendar year, at least 25 separate items of real estate subject to reporting to at least 25 separate transferees, and that each of the items of real estate was or will be held primarily for sale or resale to customers in the ordinary course of a trade or business. Reg. Section 1.6045-4(d). In the case of a transfer in which there is one or more exempt transferors and one or more non-exempt transferors, the person responsible for reporting must report with respect to the non-exempt reporting person. Reg. Section 1.6045-4(d)(1).

See Section 618.4(a)(2) for discussion of how the proceeds are allocated in this case.  A person subject to the reporting requirements may elect to report transactions that are exempt from reporting under these rules, even if the transferor provides the required certification. Reg. Section 1.6045- 4(a).

The amount that must be reported is the gross proceeds of the transaction.  Code Section 6045(a). In the case of a transfer that includes real estate and other assets, this includes the entire amount of proceeds, without allocation among the assets. Reg. Section 1.6045- 4(i)(6). 

The gross proceeds for this purpose is the total cash received or to be received by or on behalf of the transferor in connection with the real estate transaction, unreduced by sales commissions and similar expenses.

Cash for this purpose includes the stated principal amount of any obligation to pay cash to or for the benefit or the transferor in the future, the amount of any liability of the transferor assumed by the transferee as part of the consideration for the transferor, or of any liability to which the real estate acquired is subject. Gross proceeds does not include the value of any property or services received by or on behalf of the transferor. Reg. Section 1.6045-4(i).

COMPLIANCE TIP: The IRS is authorized to require that the information return indicate that the transferor has receive property or services, but has not done so. See Section 618.4  If the amount of consideration to be received is subject to a contingency, the gross proceeds are computed by assuming that all the contingencies are met or otherwise resolved in a manner that maximizes the gross proceeds.

If the amount of gross proceeds cannot be determined with certainty using this method, the amount that must be reported is the greatest possible amount that can be determined with certainty. Reg. Section 1.6045- 4(i)(3).

COMPLIANCE TIP: The IRS is authorized to require this fact to be disclosed on the information return, but has not done so. See Section 618.4

When multiple transferors transfer interests in the same real estate, the reporting person must request them to provide an allocation of the gross proceeds at or before the time of closing, and must report the proceeds in accordance with this allocation. In addition, the person reporting is permitted (but not required) to report the proceeds in accordance with an allocation received from the transferors after the closing but before the due date (without regard for extensions) of the information return. If no proceeds are allocated to a transferor because the person reporting receives no or an incomplete allocation, the entire gross proceeds are reported for that transferor. Similarly, if the person reporting receives conflicting allocations, the entire gross proceeds are reported for each transferor. Reg. Section 1.6045-4(i)(5). Transferors who are husband and wife at the time of the closing and hold the real estate as tenants in common, joint tenants, tenants by the entirety or community property are treated as a single transferor for this purpose, unless the person responsible for reporting receives at or before the closing an uncontested allocation of gross proceeds between them. Reg. Section 1.6045-1(f).

Real estate transactions generally must be reported by:

(1) the person responsible for closing the transaction, including any attorney or title company, or, if there is no person responsible for closing the transaction, the first listed of

(2) the mortgage lender;

(3) the transferor's broker;

(4) the transferee's broker; or

(5) the transferee. <39>

However, the person closing the transaction, the mortgage lender, or the transferor's or the transferee's attorney or the disbursing title or escrow company, as described below may be designated as responsible for reporting by written agreement executed at or before the time of closing, as long as the person designated is a party to the agreement. Reg. Section 1.6045-4(e)(5).

Who, if anyone, is considered to be the person responsible for closing the transaction depends on the form of closing. If a Uniform Settlement Statement (RESPA statement) is used, a person listed as settlement agent on the state is the person responsible for closing the transaction. If no RESPA statement is used, or no person is listed as settlement agent, the person responsible for closing the transaction is the person who prepares a closing statement presents to the transferor and transferee. If either no closing statement or multiple closing statements are used, the person responsible for closing the transaction is, in this order:

(1) the person who participates in the transaction as the attorney for the transferee who is present at the occasion of the delivery of either the transferee's note or a significant portion of the cash proceeds, or who prepares or reviews the preparation of the documents transferring legal or equitable ownership of the real estate;

(2) the attorney for the transferor who performs this role; or

(3) the disbursing title or escrow company that is most significant in terms of the gross proceeds disbursed. Reg. Section 1.6045- 4(e)(3).

If an employee, agent, or partner, acting within the scope of employment, participates in a real estate transaction, the participation is attributed to the employer, principal, or partnership, and only the employer, principal, or partnership, and not the employee, agent, or partner, is required to report. However, the participation of a person listed on a RESPA statement as the settlement agent acting as the agent of another is not attributed to the principal. Reg. Section 1.6045-4(e)(2).

Real estate transactions generally are reported on Form 1099-S, Proceeds from Real Estate Transactions. <40> The payee statement that is required to be made to the transferor can also be made using this form. Reg.

Section 1.6045-4(m). Alternatively, it can be made by providing a copy of the RESPA statement, modified to comply with these requirements. Reg. Section 1.6045-4(m). See Rev. Proc. 99-34, 1999-40 I.R.B. 450, for the rules on using original and substitute forms.

The person making the reports also must file Form 1096, Annual Summary and Transmittal of U.S. Information Returns, or an electronic transmittal form, as explained in Section 618.1  If property is transferred by a partnership, only one form is required for the partnership. Instructions for Forms 1099, 1098, 5498, and W-2G (1999).

If multiple transferors transfer an interest in the same real estate, a separate return must be made with respect to each transferor. Transferors who are husband and wife at the time of the closing and hold the real estate as tenants in common, joint tenants, tenants by the entirety or community property are treated as a single transferor for this purpose, unless the person responsible for reporting receives at or before the closing an uncontested allocation of gross proceeds between them. Reg. Section 1.6045-1(f).

The return must be filed with the IRS after December 31 of the calendar year that includes the date of the closing and on or before February 28 of the following calendar year. Reg. Section 1.6045-4(j). However, after 1999, the due date is delayed until March 31 for returns that are flied electronically, as explained in Section 618.9 The statement must be provides to the transferor after the end of the year containing the closing date, and no later than January 31 of the following year. <41>

Returns required under this provision are subject to the rules on electronic filing (discussed in Section 618.9). Reg. Section 1.6045-4(k).

In general, each person that is required to report under these provisions is responsible for information reporting for those transactions. However, a successor business entity and a predecessor business entity can agree that the successor will file information returns reporting transactions by both under some circumstances. See Section 618.1

The information return penalties discussed in Section 607.4 apply if the returns and statements required under these rules are not filed and issued. Code Section 6724.

<ENDNOTES>

35/ Code Section 6045(a), 6045(e)(4) ; Reg. Section 1.6045-4(h).   See Notice 93-4, 1993 C.B. 295, for guidance on the taxes to be reported.

36/ Code Section 6045(b), (e)(4) ; Reg. Section 1.6045-4(m).

37/ Code Section 6045(e) ; Instructions for Forms 1099, 1098, 5498, and W-2G (1999)- See Notice 90-70, 1990-2 C.B. 351.

38/ Reg. Section 1.6045-4(c)(1) ; Instructions for Forms 1099, 1098, 5498, and W-2G (1999).

39/ Code Section 6045(e)(2) ; Reg. Section 1.6045- 4(e).

40/ Reg. Section 1.6045-4(g) ; Instructions for Forms 1099, 1098, 5498, and W-2G (1999)

(1) IN GENERAL

In the case of a real estate transaction, the real estate reporting person shall file a return under subsection (a) and a statement under subsection (b) with respect to such transaction.

For purposes of this subsection, the term "real estate reporting person" means any of the following persons involved in a real estate transaction in the following order:

(A) the person (including any attorney or title company) responsible for closing the transaction,

(B) the mortgage lender,

(C) the seller's broker,

(D) the buyer's broker, or

(E) such other person designated in regulations prescribed by the Secretary.

Any person treated as a real estate reporting person under the preceding sentence shall be treated as a broker for purposes of subsection (c)(1).