Homebuyer Credit

I am in agreement with everybody else in saying that from a practical perspective, "I think it would fly". Even so, I am going to include a little bit of technical analysis because I feel it could bring up a couple of interesting legal issues.

From a technical perspective the IRS could theoretically (if they cared enough to do it) try to use the Substance Over Form doctrine to collapse the sale of the house from the original seller to the realtor and then to your kids into a sale of the property from the original seller to your kids, but even so, the IRS has not always been successful in trying to do this (See William P. DOYLE and Crystal Gibson Doyle, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, and COTTAGE SAVINGS ASSOCIATION v. COMMISSIONER OF INTERNAL REVENUE 286 F.2d 654; 1961 for a couple of examples) and the fact that the realtor is a nonrelated party and that taxpayers are generally allowed to structure their transactions in such a way as to maximize tax benefits (with exceptions) could make it more difficult for the IRS to do this.

Lets assume the worst case scenario (which I feel is unlikely) that the IRS disallowed the credit as a result of collapsing the transactions. The question then remains as to when the sale of the property to your kids took place? Generally the courts have found that a sale takes place when the "benefits and burdens" of ownership have passed from the buyer to the seller (Numerous court cases have used this term. See: COMMISSIONER OF INTERNAL REVENUE v. SEGALL 114 F.2d 706; 1940 U.S. App., for a good example of a court determining when a sale took place). Facts and considerations to be taken into account would include an unconditional right to the property and who is using it.

Assuming there is no written agreement between the realtor and your kids to sell the property to them, and that the realtor states that he has no obligation to sell the property to them, then the children may be able to argue that the Statute of Frauds would make it impossible for them to force the realtor to sell them the property and as a result the sale to them did not take place until the realtor sold it to them.

I believe it is technically possible that the IRS could collapse the transaction as a sale between the original owner and your kids, but still have the sale take place at a late enough time for your son to qualifiy for the credit. Most of what I wrote here was mostly off the cuff (except pulling up the legal cases) and I wonder what other people think about this. Any comments.