Income from Confidentiality Agreement on sale of home taxable?


S

satitiger

A hospital in our area is purchasing peoples homes and they
are paying them $$ to sign a confidentiality agreement
regarding the sale terms. They are telling them that the $$
is not taxable. It is not included on the settlement
statement for the home purchase/sale it is just given to
them in a separate check. They are also paying out funds for
access to the property. Is this taxable?
 
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M

Missy

A hospital in our area is purchasing peoples homes and they
are paying them $$ to sign a confidentiality agreement
regarding the sale terms. They are telling them that the $$
is not taxable. It is not included on the settlement
statement for the home purchase/sale it is just given to
them in a separate check. They are also paying out funds for
access to the property. Is this taxable?
It depends. If the person(s) lived in the home and were
single, any profit from the sale of the home under $250K is
tax free. If they were married and lived in the home the
figure is $500K. They have to have lived and owned the home
for two of the previous five years.

Missy Doyle
 
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S

Stuart A. Bronstein

A hospital in our area is purchasing peoples homes and they
are paying them $$ to sign a confidentiality agreement
regarding the sale terms. They are telling them that the $$
is not taxable. It is not included on the settlement
statement for the home purchase/sale it is just given to
them in a separate check. They are also paying out funds for
access to the property. Is this taxable?
Does the agreement include a clause saying that the fact
these payments are being made is also confidential???

Stu
 
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P

Paul Thomas, CPA

A hospital in our area is purchasing peoples homes and they
are paying them $$ to sign a confidentiality agreement
regarding the sale terms. They are telling them that the $$
is not taxable. It is not included on the settlement
statement for the home purchase/sale it is just given to
them in a separate check. They are also paying out funds for
access to the property. Is this taxable?
Hospitals don't give out the best tax advice now, do they.

It's taxable income, if not included in the capital gains of
the house and otherwise exempted under Section 121.

I'd want it on the closing statement to prove it's exempt
under 121 (if that's the case) instead of an under the table
transaction.
 
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B

Bill Brown

A hospital in our area is purchasing peoples homes and they
are paying them $$ to sign a confidentiality agreement
regarding the sale terms. They are telling them that the $$
is not taxable. It is not included on the settlement
statement for the home purchase/sale it is just given to
them in a separate check. They are also paying out funds for
access to the property. Is this taxable?
Either the amouts are taxable or they are part of the sales
proceeds where the nature of the property in the seller's
hands determines taxability.
 
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D

Dick Adams

A hospital in our area is purchasing peoples homes and they
are paying them $$ to sign a confidentiality agreement
regarding the sale terms. They are telling them that the $$
is not taxable. It is not included on the settlement
statement for the home purchase/sale it is just given to
them in a separate check. They are also paying out funds for
access to the property. Is this taxable?
If the hospital is a 502(c)(3), it may not have to purchase
tax stamps. Otherwise the sale price would be public
knowledge making the nondisclosure agreement meaningless.

How much are they paying for the nondisclosure agreements?
Are they buying the houses or just getting options to buy?

If the payment is not on the settlement statement, it is
ordinary income which is obviously taxable to the payee.
So if they make you an offer, ask them for a signed letter
from a tax attorney, a CPA, or an Enrolled Agent stating
that they researched it and have concluded it is not
taxable. Also ask for 50% more for the agreement than
they are offering.
 
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S

Shyster1040

There doesn't appear to be much authority that I can find
that covers confidentiality agreements outside of the
context of noncompete agreements made in the context of
selling a trade or business.

However, it strikes me that the payment for the
confidentiality agreement should constitute ordinary taxable
income to the recipients because, essentially, the buyer is
paying them to perform a negative service for it - namely,
the hospital is paying for them to not say anything about
the terms of the sale.

That strikes me as comfortably analogous to compensation for
services to be rendered, not in the context of an
employer/employee relationship, and would constitute
ordinary gross income to be reported on the tax return as
"other income."

It also strikes me that the hospital may be trying to pull a
fast one by trying to make the payments deductible rather
than capitalizing them into the cost of the property bought,
which it must do because, under the INDOPCO case, these
expenses appear to relate directly to the acquisition of the
houses by the hospital.
 
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L

ltsllc

If the hospital is a 502(c)(3), it may not have to purchase
tax stamps. Otherwise the sale price would be public
knowledge making the nondisclosure agreement meaningless.

How much are they paying for the nondisclosure agreements?
Are they buying the houses or just getting options to buy?

If the payment is not on the settlement statement, it is
ordinary income which is obviously taxable to the payee.
So if they make you an offer, ask them for a signed letter
from a tax attorney, a CPA, or an Enrolled Agent stating
that they researched it and have concluded it is not
taxable. Also ask for 50% more for the agreement than
they are offering.
Why is the hospital buying people's homes? Is it to buy up
property to expand the hospital or is it because it is some
kind of settlement for a lawsuit the homeowners brought
against the hospital?

If it is for expansion, then the income *may* be nontaxable
under IRC section 121.

If it is for a lawsuit settlement, then possibly the $$ is
punitive damages which would be taxable.

However, it appears the money is being paid not for the fair
market value of the home but to keep them quiet, so I'd say
it is ordinary income and should be reported on Form 1040,
line 21.
 
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