Reference no: EM131812046
Sam, a calendar-year taxpayer sold Blackacre, which had a basis of $100,000 to Perch on February 1, 2015, for $800,000. The terms of the sale permitted Perch to reconvey the land for $800,000, if, within one year of the date of sale, Perch was unable to obtain a change in zoning consistent with his specified intended use of Blackacre. Perch's request for a change in zoning, on which he spent $40,000, was rejected on December 21, 2015, and he exercised his right to reconvey Blackacre on December. 22, 2015, because he determined that there was no practical way the rejection could be reversed before February 1, 2016. Because of year-end difficulties, the actual reconveyance did not occur until January 5, 2016, when Sam paid $800,000. (a) What are the tax consequences of the transaction to Sam if she is a cash-method taxpayer? (b) An accrual-method taxpayer? (c) What are the tax consequences of the transaction to Perch if he is a cash method taxpayer? (d) An accrual method taxpayer? Explain with references to primary sources.
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