New IRS Ruling on Employer-Sponsored Home Buyout Programs

Companies doing business internationally need a global business plan that includes maintaining a mobile workforce. The relocation industry has been patiently awaiting a favorable ruling on the taxability of home sale/purchase transactions. Revenue Ruling 2005-74, which has been anticipated for more than 30 years, represents an important win for the industry. Since 1972, in Revenue Ruling 72-339, the IRS has maintained that if an employer-sponsored relocation home sale program is viewed as two separate sales, then there are no payroll tax consequences for the employee following the second sale. As an alternative to using a home buyout program offered by a relocation management company, an employer could offer a transferred employee an employee-relocation loan or a bridge loan. To avoid unfavorable tax consequences, employer-sponsored home purchase buyout programs should avoid contingent sales that allow employees to negotiate the terms of the final sale