Rev. Rul. 58-558

Advice has been requested as to the basis upon which the documentary stamp tax imposed by section 4361 of the Internal Revenue Code of 1954 should be computed where an individual who owned land needed for city street purposes agreed to sell such realty to the city for a certain price and to remove a building from the land for an additional amount.

An individual owned a parcel of land, upon which his residence was located, that was needed by the city for widening, opening, and extending streets. The owner submitted an offer in writing to the city whereby he agreed to sell the land for $500 and to accept $12,000 for moving the residence located thereon to another location for his own benefit. The city, by resolution of its common council, agreed to accept the owner's offer. The recorded deed disclosed the figure of $12,500 as the net consideration for the land.

Section 4361 of the Code imposes a tax on each deed, instrument, or writing, whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers when the consideration or value of the interest or property conveyed, exclusive of the value of any liens or encumbrances remaining thereon at the time of sale, exceeds $100.

In the instant case, the city wanted the land for street purposes. It did not want the building, but only the physically unencumbered property and the property owner in effect undertook to sell the land free of the building. The agreement, therefore, constitutes an indivisible contract to transfer land free of any building thereon. In exchange for the physically unencumbered land the city agreed to pay the owner $12,500. On the other hand, the property owner asked for and received $12,500 in return for transferring title to only his land. Even though the agreement showed an apportionment of the consideration which the city paid to the owner, the total amount was apparently considered a fair value for the land acquired. Accordingly, it is held that, for purposes of computing the documentary stamp tax, the amount of actual consideration paid for the land was $12,500 as stated in the deed.