Cramer v. Commissioner
55 T.C. 1125 (Tax. Ct. 1971)

  • Cramer sold her house to Osborn under a "land sale contract."
    • That's like an installment plan, where Osborn was to pay Cramer monthly payments and also pay the property taxes.
  • Osborn was a deadbeat who didn't pay. Eventually, Cramer paid the property taxes herself and foreclosed the property.
    • Later that same year, Cramer sold the house to someone else for no gain.
  • At the same time, Cramer's mother was sick, so Cramer was looking after her house and paying the property taxes there as well.
  • Also at the same time, Cramer had bought herself a new house, and was paying the property taxes there as well.
  • When Cramer filed her taxes, she deducted the amounts paid in property taxes on all three residences.
  • The IRS denied the deduction. Cramer appealed.
    • The IRS argued that only the property taxes paid on Cramer's new house were deductible.
  • The Tax Court found mostly for the IRS.
    • The Tax Court found that the property tax Cramer paid for her Mom's house was not deductible.
      • The Court looked to 26 U.S.C. 164, which allows a deduction for real property taxes, but they are, in general, "deductible only by the person upon whom they are imposed."
      • Since the house wasn't owned by Cramer, and she wasn't liable to pay the taxes, she couldn't claim the deduction even though she was the one who paid the taxes.
        • The money should be treated like a gift from Cramer to Mom (see 26 U.S.C. 102).
        • See Old Colony Trust Co. v. Commissioner (279 U.S. 716 (1929)), which dealt with a similar issue.
    • The Court found that the property tax Cramer paid for the house she sold to Osborn was partially deductible.
      • The Court looked to 164(d)(1), which says that property taxes paid on property that was bought or sold is prorated.
      • In this case, the Court determined that Cramer owned the property for 48 out of the 365 days of the tax year in question, so she is allowed to deduct 48/365th of the amount she paid in property taxes on that house.