CCA 200942043: Recourse and nonrecourse short-sale treatment

Number

200942043

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

Exclusion of Gain from Sale of Principal Residence (Amended by P.L. 105-34, Section 312(a)); Basis

Topics

Income and deductions

Code sections

§ 121, § 108, § 6110

Ruling dated

January 27, 2009

Publicly released

October 16, 2009

Source

View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2009, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

This Chief Counsel Advice responds to questions about short sales and FIRPTA withholding. It states that Counsel’s office does not handle withholding questions but can address amount realized. In a recourse situation, the transaction must be bifurcated into amount realized and cancellation-of-debt income, while in a nonrecourse situation the amount realized includes the relevant amount and there is no cancellation-of-debt income. The advice says IRC §§ 121 and 108(h) may apply to the resulting gain or cancellation-of-debt income, but does not determine how FIRPTA withholding regulations apply.

Ruling snapshot

Question: How are amount realized, cancellation-of-debt income, and possible home-sale exclusions treated in recourse and nonrecourse short sales?
Outcome: Advice given
Key authorities: IRC §§ 121 and 108(h); FIRPTA withholding regulations

Full text (IRS public release)

ID: CCA-127147-09 Number: 200942043
Office: ----------------
Release Date: 10/16/2009

UILC: 121.00-00, 121.05-01

From: ----------------
Sent: 1/27/09
To: -----------------
Cc: ----------------------------
Subject: Short Sales and FIRPTA Withholding

--------

Here is the response I received from Branch ---of -----, which handles basis issues. I believe the basic message from ------- is that he doesn't see an ---- basis issue. Please let me know if you need further help.

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From: ------------------
Sent: Tuesday, January 27, 2009 12:37 PM
To: ---------------
Cc: ---------------------------
Subject: RE: Short sales and firpta withholding

-------- - I spoke to -------. He agrees that we don’t handle withholding questions. We can help with amount realized, however, as I mentioned below, I don’t think that’s the question. In a recourse situation, taxpayer is required to bifurcate the transaction. The amount realized is $------------and the COD is $-------
----------. (Section 121 may or may not apply to gain realized. Section 108(h) may or may not apply to the COD.) In a nonrecourse situation, the amount realized is $------------and there is no COD. (Section 121 may or may not apply to gain realized.) I don’t know how the FIRPTA withholding regulations apply or what they latch onto for withholding purposes (selling price or amount realized or COD or gain realized or something else?) Let me know if you need anything more.

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