Under employer sponsored employee relocation programs, the purchase and sale of
employee homes are commonly structured to take advantage of tax laws affecting such
transfers. In November 2005 the Internal Revenue Service issued Revenue Ruling 2005-
74. The primary purpose of the ruling was to address the methods of transferring
ownership that the IRS will recognize favorably for federal tax purposes for home sale
transactions under an employer sponsored employee relocation program. In their ruling,
the IRS indicated the use of the deed in blank is not a factor in determining the federal
income taxation of the home sale benefits.
The deed in blank was the predominant method used by most relocation home sale
programs prior to 2001. The deed in blank was used for ease of administration as well as
cost considerations. In 2001, based on the recommendation of the Employee Relocation
Council (ERC), most companies switched from using a deed in blank to a two deed
process. One of the key reasons for ERC’s recommendation was a number of IRS audits
on home sale programs resulting from the Tax Court’s 1997 decision in the Amdahl case.
The deed in blank was a key reason for the Tax Court’s decision to treat home sale
benefits as taxable compensation.
Changing from a deed in blank to a two deed process increased the cost of relocations
involving a home sale. The use of two deeds requires the payment of transfer fees for
each deed transferring ownership, one for the transfer from the employee to the relocation
service company and another for the transfer from the relocation service company to the
outside buyer. In many instances using a deed in blank process allows the imposition of
only one transfer fee, saving the cost of the second transfer fee.
As we discussed in the Primacy position paper issued in December 2005, Revenue Ruling
2005-74 provides a safe harbor for home sale transactions. Home sale costs incurred in
programs following the appraised value process, or an amended value process, which use
the 11 key elements recommended by ERC, will not be taxable to the transferring
employee for federal income tax purposes. The analysis in Revenue Ruling 2005-74
indicates the tax protection will apply whether the transaction is facilitated using a single
deed (deed in blank) or a two deed process. With this statement, the IRS formally
announced they will disregard one of the key factors cited in the Tax Courts decision in
the Amdahl case. Since the issuance of this ruling, many companies have debated
whether to continue using the two-deed process or revert back to the deed in blank
practice, the method utilized by most relocation service companies prior to the Amdahl
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A key factor to consider in making this decision is to determine if your home sale
program meets the requirements for a tax protected home sale as detailed in the revenue
ruling. Companies that are not in compliance with the ruling or which are not strictly
following the 11 key elements recommended by ERC may want to continue using the two
deed process. Although the IRS indicates the deed in blank is acceptable, taking title is
one of the key factors cited by the Tax Court in both Amdahl and Grodt McKay, the basis
for the ERC eleven-step program. In determining whether a valid transfer has occurred,
taking title will warrant consideration for programs that do not meet all of the
requirements of a tax protected home sale transaction as provided in Revenue Ruling
Companies whose home sale programs meet the requirements of Revenue Ruling 2005-
74 should still consider state issues where a home sale occurs.
Home sale programs, which meet the safe harbors of the revenue ruling, now have an
option to use the deed in blank. However, Revenue Ruling 2005-74 only applies to the
federal income tax consequences of home sale transactions. The laws of each state,
which govern the transfer of real property, are independent of the IRS guidelines. The
ruling shifts the issue of the deeding process from the federal to the state level. State
legal and tax issues still apply and need to be considered in the decision to switch.
Because the laws of each state vary, the decision to stay with the two deed process or
switch to the deed in blank, should be made on a state by state basis.
For purposes of the deed in blank issue, states can be broken into three categories based
the legal process of the state.
• States where the two deed process is necessitated by state legal and/or tax factors
• States with minimal or no transfer fees in which the additional legal protection
afforded by the two deed process may be worth the additional nominal cost
• States where the deed in blank process will result in significant savings
States necessitating the two-deed process
The tax and/or legal factors in the following eleven states necessitate the use of two deeds
to facilitate the home sale transaction:
• New Hampshire
• New Jersey2
• New York
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States with minimal or no transfer fees
The following 13 states have minimal or no transfer fees:
• New Mexico
• North Dakota
In these states, additional cost of the two deed process is minimal. This cost consists of
the cost to prepare and record the second deed. In these states the additional cost may be
worth the legal protection of using two deeds. This will need to be weighed against the
additional cost including administrative cost of using the two deed process.
States with a choice
Transfer fees with rates ranging from .5% to 5% of the sales price exist in the following
states. These are the states where the largest savings can be achieved. Using a deed in
blank process will save the payment of a second transfer fee.
• District of Columbia
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• New Jersey2
• North Carolina
• Rhode Island
• South Carolina
• South Dakota
• West Virginia
In addition to the transfer fees, other state issues, which were common under the old deed
in blank process, will need to be considered. These issues include withholding on
nonresident employees and notary statutes. These issues can generally be resolved
through proper planning and disclosure of the transaction.
Programs that do not meet the requirements of the safe harbors provided by Revenue
Ruling 2005-74, may want to continue to use the two deed process in all cases. Formally
taking title through the use of a second deed provides an additional factor indicating
ownership, which can be used if a noncompliant program is challenged by the IRS.
Revenue Ruling 2005-74 provides an opportunity for savings. We suggest each company
review the specifics of their relocation program with their tax and legal advisors to
determine whether the one or two deed process makes sense for them. In many cases, a
blended approach may be the best answer. This would result in a system where a two
deed process is used in states where two deeds are necessitated, and a deed in blank in
states where the laws allow the use of a deed in blank. A blended approach would result
in the savings of the second transfer fee in most states. Circumstances may change as
state laws are revised. Primacy has the processes in place to accommodate a deed in
blank, two deed, or blended approach. We will continue to monitor the state laws to keep
you informed in the event the circumstances change. Should you have any questions,
please contact your Client Services Director.
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In Maryland the recording of deeds and the administration of transfer taxes is the responsibility of the County Clerks.
Maryland has 23 counties with differing rules and practices that vary county to county. Generally where consideration
is less than $1 million a single deed presented for recording will be accepted with payment of only one transfer tax.
Where consideration is $1 million or more the practices are not uniform and the County Clerk may require a copy of
the HUD-1. Since the HUD-1 shows someone other than the transferring employee as seller, the County Clerk may
require proof of sale from the transferring employee and the collection to two transfer taxes even if a deed-in-blank is
utilized. Companies using a two-deed process in Maryland for all transactions may wish to reconsider that practice.
In New Jersey there are several “tax” matters (transfer taxes, mansion tax (buyer’s responsibility) and capital gains
withholding) to be considered. The capital gains withholdings are required to be deposited with the state. However, the
standard process to do so is with the recordation of the deed. It is recommended that for files that require a capital gains
tax withholding that the two-deed process be considered so that the capital gains withholding funds can be deposited
with the state at the time the property is acquired from the transferring employee. Timing and cost factors may need to
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