Full marina management fee allowed as boat-slip sale expense

Plain-English summary

Chief Counsel considered whether a marina management fee paid before the sale of a seized boat slip could be deducted from the sale proceeds as an expense of sale. The advice treated the management fee, including its electricity component, as similar to storage or another miscellaneous fee that can qualify as a sale expense. It also concluded that the full bill could be allowed because the property was seized before the bill period ended, payment may have helped preserve or sell the property, and the property administrator had discretion to determine necessary sale expenses.

Ruling snapshot

• Question: Could the full marina management bill be deducted from proceeds from the sale of a seized boat slip?
• Outcome: Advice given, the full payment could be treated as a sale expense
• Key authorities: IRC §§ 6341 and 6342(a)(1); Treas. Reg. § 301.6341-1; IRM §§ 5.10.1.3.3.1(1) and 5.10.4.7(4)

Full text (IRS public release)

ID: CCA-913412-13
Office: ----------
UILC: 6342.00-00, 6342.01-00
Number: 201411034
Release Date: 3/14/2014
From: -----------------------
Sent: Friday, September 13, 2013 4:13 PM
To: --------------
Cc: ------------------------------------
Subject: ----------Boat Slip case

About a month ago, -----------------did contact our office and asked for our advice on the
cost of sale issue.

Here are the facts as we understand them (please let us know if we do not understand
the facts correctly):

The Service seized a boat slip on ------------------. The boat slip was sold by PALS on ----
--------------------------. To be able to close on the sale of the boat slip the PALS paid
harbor master management fee of $--------------on --------------------------. The bill covered
the period of -------------------to ---------------------------.

The question as we understand it is: Whether the harbor master management fee is a
cost of sale expense. If it is, shall the whole amount, paid by PALS in the amount of $---
--------------, be deducted from the sale of the boat slip proceeds or the amount shall be
prorated and amounts attributable to four (4) days in ------- (before the Service seized
the property) and amount attributable to a period after -------------------------- (after the
PALS sold the boat slip) shall not be included into the cost of sale amounts?

Answer: -------------------------------management fee paid by PALS is a cost of sale
expense. IRM section 5.10.1.3.3.1 (1) states that storage costs and other
miscellaneous fees can be cost of sale expenses. We believe that marina management
fee is like a storage fee in a way. Also, as far as we understand, the marina bill includes
electricity bill as well. That portion of the expense can be considered as a
miscellaneous fee which can also be a cost of sale expense.

Another, harder question is how much of the total bill paid is a cost of sale expense. Is
it a 100 % of the bill paid or a prorated amount that covers only the period during which
the property was seized? In other words, shall the Service subtract the amounts
attributable to the four (4) days in ------- and days from ------------------(the date of sale) to
-------------------(the date of the bill) from the total bill paid to come to a number that will
represent an expense of sale amount?

Answer: I.R.C. section 6342 (a)(1) allows to deduct expenses of sale from the amounts
realized as a result of sale of taxpayer’s property. Section 6341 provides that, “[t]he
Secretary shall determine the expenses to be allowed in all cases of levy and sale.”
Treas. Reg. § 301.6341-1 states that “the district director shall determine the expenses
to be allowed in all cases of levy and sale. Such expenses shall include the expenses
for protection and preservation of the property during the period subsequent to levy, as
well as the actual expenses incurred in connection with the sale thereof.” (Emphasis
added).

Basically, expenses incurred “subsequent to levy” and “actual expenses” incurred in
connection with the sale shall be allowed. The property was seized on ---------------------
and was sold on --------------------------. All expenses incurred during this period are
undoubtedly cost of sale expenses and shall be allowed as such. Nevertheless,
I.R.M. section 5.10.4.7(4) allows PALS to exercise sound judgment when they are
identifying the necessary expenditures and determining whether they can be charged as
expenses of sale. The same section states that “expenses made to preserve the value of
the property and prevent wasting may be incurred as an expense of sale”. When we
analyzed this question we believed that it was in the discretion of PALS to determine
what expense and how much of it was attributed to the expense of sale. Because the
PALS paid the whole bill and did not prorate, the PALS could have been exercising their
discretion and sounds judgment in taking this decision. The payment of the bill might
have facilitated the sale of the boat slip. Because the representative of PALS who
executed the sale of the boat slip had since retired we were unable to verify these facts
with him/her, but taken into consideration the amount of money at stake (based on our
conversation with -------the amount is really small) and based on the facts of this
particular case (the bill was due on --------------------------and we don’t believe the boat
slip management company would have allowed to prorate the amounts due) we advised
------ that the full amount of expenses paid by PALS can be considered an expense of
sale.

If you want to discuss this issue further or you disagree with our conclusion, please let
us know.

Thanks.