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Issue  31  Article  72
Published:  2/1/1998

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Capital Gains Certification - Alternative to 1099-S (with Form)
Chris Burti, Vice President and Legal Counsel

Sec. 312 of the "Taxpayer Relief Act of 1997" provides that 1099-S information reports do not need to be filed for sales or exchanges of principal residences with a sale price up to $250,000 for single taxpayers or $500,000 for married couples as long as a certification in a form acceptable to the Secretary of the Treasury is obtained from the seller.

The IRS has recently issued Review. Proc. 98-20 (26 C.F.R. 601.602: Tax Forms and Instructions) which sets forth the requirements for the certification and a sample form. (See below.) A substitute form may be used if the content and wording meet the IRS requirements.

The essential requirements of the procedure are as follows:

Certification

    • Must be in writing, signed by the seller under penalty of perjury,
    • Seller must have owned and used the principal residence for two of the last five years,
    • The seller must not have owned or exchanged another principal residence during the two year period,
    • No portion of the residence may have been used for business or rental purposes,
    • The sale price and marital status requirements must be met.

Record Keeping

    • The certification must be obtained on or before January 31 of the year following the sale or exchange,
    • The certificate must be retained for four years.

For relevant transaction that occurred between May 7, 1997 and December 31, 1997 you may obtain a certification by February 28, 1998 as an alternative to the 1099-S if you are otherwise required to report. It may be simpler to file Form 1099-S for 1997 transactions, especially if your clients are numerous or widespread. If you have access to the internet, you may be able to obtain further information from the IRS web site (ftp://iris.irs.ustreas.gov/pub/irs-drop/rp98-20.pdf).

APPENDIX

CERTIFICATION FOR NO INFORMATION REPORTING

ON THE SALE OR EXCHANGE OF A PRINCIPAL RESIDENCE

This form may be completed by the seller of a principal residence. This information is necessary to determine whether the sale or exchange should be reported to the seller, and to the Internal Revenue Service on Form 1099-S, Proceeds From Real Estate Transactions. If the seller properly completes Parts I and III, and makes a "yes" response to assurances (1) through (4) in Part II, no information reporting to the seller or to the Service will be required for that seller. The term "seller" includes each owner of the residence that is sold or exchanged. Thus, if a residence has more than one owner, a real estate reporting person must either obtain a certification from each owner (whether married or not) or file an information return and furnish a payee statement for any owner that does not make the certification.

Part I. Seller Information

  1. Name ______________________________________________________
  2. Address or legal description (including city, state, and ZIP code) of residence being sold or exchanged_______________________________________________
  3. ________________________________________________________
  4. Taxpayer Identification Number (TIN) ____________________________________.

Part II. Seller Assurances

Check "yes" or "no" for assurances (1) through (4).

Yes No

__ __ (1) I owned and used this residence as my principal residence for periods

aggregating 2 years or more during the 5 year period ending on the date of

the sale or exchange of the residence.

__ __ (2) I have not sold or exchanged another principal residence during the 2

year period ending on the date of the sale or exchange of the residence

(not taking into account any sale or exchange before May 7, 1997).

__ __ (3) No portion of the residence has been used for business or rental

purposes by me (or my spouse if I am married) after May 6, 1997.

__ __ (4) At least one of the following three statements applies:

The sale or exchange is of the entire residence for $250,000 or less.

OR

I am married, the sale or exchange is of the entire residence for $500,000

or less, and the gain on the sale or exchange of the entire residence is

$250,000 or less.

OR

I am married, the sale or exchange is of the entire residence for $500,000

or less, and (a) I intend to file a joint return for the year of the sale or

exchange, (b) my spouse also used the residence as his or her principal

residence for periods aggregating 2 years or more during the 5 year period

ending on the date of the sale or exchange of the residence, and (c) my

spouse also has not sold or exchanged another principal residence during

the 2 year period ending on the date of the sale or exchange of the

residence (not taking into account any sale or exchange before May 7,

1997).

Part III. Seller Certification

Under penalties of perjury, I certify that all the above information is true as of the end of the day of the sale or exchange.

____________________________________________ _______________________

Signature of Seller Date


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