What qualified as a written contract of sale under SC Revenue Ruling 91-1's historical 1987 long-term-capital-gain transition rule?

Plain-English summary

South Carolina Revenue Ruling 91-1 defined the “written contract of sale” required by a historical transition rule for certain long-term capital gains recognized in 1987.

The agreement had to become binding between January 1 and June 22, 1987. It had to identify the buyer and seller, describe the property, state the consideration, and obligate the seller to convey title.

A single formal paper contract was not the only way to qualify. Several connected writings—and even electronically stored words or figures—could together establish the binding sale.

The historical tax rule

Former Section 12-7-460 gave special treatment to long-term gains recognized in 1987 under a written contract of sale executed during the specified January 1–June 22 period. The difference between the tax actually paid and the amount computed under the special rule was refundable in two equal installments beginning with refunds for the 1990 tax year.

The ruling reasoned that June 22, 1987 was selected because it was the effective date of the legislation eliminating the capital-gains deduction. Requiring writings reduced disputes about whether an oral contract existed and when it became binding.

Required elements

For this statute, the ruling required an enforceable agreement under which a seller agreed to convey title to property to a buyer for consideration. The writing or combined writings had to show:

• the contracting parties;
• the property or item sold;
• the consideration; and
• a binding date within the statutory window.

“Executed” meant the agreement became enforceable, not merely that someone prepared a document.

Forms of writing the ruling accepted

The ruling said qualifying contracts included a formal contract printed on paper and signed by buyer and seller. But the category also could include:

• a binding series of letters, memoranda, or notes;
• a deed conveying real estate; and
• a stock sale through a recognized exchange, with a broker's confirmation statement accepted as evidence.

For exchange-traded stock, the customer agreement, sell order, communications to the exchange, and information stored in exchange and broker computers could together form the writings. The ruling relied on the Federal Rules of Evidence concept that writings can include electronic or mechanical data storage, not only paper.

What this means for you

Taxpayers with historical claims

The rule concerned a closed historical period and a repealed capital-gain deduction. It is not a current capital-gains planning rule.

Contract and transaction records

The ruling recognized that multiple records could collectively prove a binding contract if they contained the essential parties, property, consideration, and enforceability facts.

Stock sales

A broker confirmation could evidence qualification, supported by the broader chain of written and electronic transaction records.

Tax professionals

The key distinction was between evidence that merely discussed a possible sale and writings that together established an enforceable sale within the statutory dates.

Common questions

Q: Did a qualifying contract have to be one formal signed document?

A: No. Multiple letters, memoranda, notes, or electronic records could together constitute the writing.

Q: What information had to appear in the writings?

A: The parties, the property sold, and the consideration, with an enforceable agreement to convey title.

Q: What date controlled?

A: The contract had to become binding between January 1 and June 22, 1987.

Q: Could a deed qualify?

A: Yes. The ruling listed deeds conveying real estate as an example.

Q: Could an exchange-traded stock sale qualify?

A: Yes. The Tax Commission would accept the seller's broker confirmation as evidence, with the related records forming the writings.

Citations and references

• S.C. Code Ann. § 12-7-460 — historical 1987 long-term-capital-gain treatment and refund
• S.C. Code Ann. § 32-3-10 — Statute of Frauds writing requirement cited for guidance
• Federal Rule of Evidence 1001(1) — writings definition cited by the ruling
• Goodwin v. Hilton Head Co., 273 S.C. 758, 259 S.E.2d 681 (1979)
• Act 170 of 1987 — capital-gains-deduction change discussed by the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR91-1.pdf

Original ruling text

SC REVENUE RULING #91-1

SUBJECT:

"Written Contract of Sale"/Long-term Capital Gains
(Income Tax)

TAX MANAGER:

John P. McCormack

EFFECTIVE DATE:

Applies to all periods open under statute.

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-7-460 (Supp. 1989)

AUTHORITY:

S.C. Code Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Revenue Ruling is the Commission's official interpretation of how
tax law is to be applied to a specific set of facts. A Revenue Ruling is
public information and remains a permanent document until
superseded by a Regulation or is rescinded by a subsequent Revenue
Ruling.

Question:
For purposes of Code Section 12-7-460, what constitutes a "written contract of sale executed
between January 1, 1987 and June 22, 1987"?
Facts:
In 1988 the Legislature enacted Code Section 12-7-460 to provide a special tax treatment for
long-term capital gains recognized in 1987. This section was amended in 1989 to limit the
special tax treatment to long-term capital gains recognized in 1987 "pursuant to a written
contract of sale executed between January 1, 1987 and June 22, 1987".
The special tax treatment allows taxpayers a refund for the difference between the tax due under
this section and the actual tax paid on the gain by taxpayers on their 1987 tax return. This refund
is to be paid in two equal annual installments beginning with each taxpayer's 1990 tax return.

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Discussion:
Code Section 12-7-460 reads:
(A) Long-term capital gain of individuals, partnerships (including S corporations),
estates, and trusts which were recognized in 1987, pursuant to a written contract of sale
executed between January 1, 1987, and June 22, 1987, must be determined in accordance
with the provisions of Section 1202 of the Internal Revenue Code of 1954, as amended
through December 31, 1985.
(B) The difference between the tax paid on the taxpayer's return attributable to this longterm capital gain and the tax attributable to this gain which would have been paid under
the provisions of this section is refundable to the taxpayer in two equal installments with
the first refund due to be paid when refunds are paid for the 1990 taxable year. The South
Carolina Tax Commission may allow a portion or all of a refund installment due to be
used as a credit against the taxpayer's liability for that year.
In determining what constitutes a "written contract of sale executed between January 1, 1987,
and June 22, 1987" we must answer the following questions:
(1) What is a "contract of sale"?
(2) What is meant by "written", and what must be in writing?
(3) What is meant by "executed", or execution of a contract?
The American Heritage Dictionary, Second College Edition, defines the following words, in
whole or in part:
"Contract"

1. An agreement between two or more parties, esp. one that is
   written and enforceable by law.

"Write"

1. To form (letters, for example) on a surface with a tool such
   as a pen or pencil.
2. To form (a work, for example) by inscribing letters or
   symbols on a surface ....

Execute

1. To carry out; put into effect ....
2. To make valid, as by signing: execute a deed.

Therefore, a written contract is an agreement between two or more parties formed by inscribing
letters and symbols on a surface, which is "executed" when it becomes enforceable by law. Now
we must decide what is meant by the word "writing" in the context of modern technology.
“The Federal Rules of Evidence, Section 1001(1), define "writings" to "consist of letters,
words, or numbers, or their equivalent, set down by handwriting, typewriting, printing,
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photostating, photographing, magnetic impulse, mechanical or electronic recording, or
other form of data compilation.”
In reviewing the Federal Rules of Evidence, the "Notes of Advisory Committee on Proposed
Rules", with respect to the definition, reads:
Traditionally, the rule requiring the original centered upon accumulations of data and
expressions affecting legal relations set forth in words and figures. This meant that the
rule was one essentially related to writings. Present day techniques have expanded
methods of storing data, yet the essential form which the information ultimately assumes
for usable purposes is words and figures. Hence, the considerations underlying the rule
dictate its expansion to include computers, photographic systems, and other modern
developments (emphasis added).
In summary, writings may include electronic impulses and other forms of modern technology, as
well as paper documents.
Now we must determine what elements of a written contract of sale must be in writing.
The State's Statute of Frauds, found at Code Section 32-3-10, provides that certain contracts
must be in writing, and therefore, can be of some guidance. That section provides that no legal
action, to enforce certain types of contracts, can be brought "[u]nless the agreement upon which
such action shall be brought or some memorandum or note thereof shall be in writing and signed
by the party to be charged therewith or some person thereunto by him lawfully authorized."
In reviewing the Statute of Frauds, the State Supreme Court, in Goodwin v. Hilton Head Co.,
273 S.C. 758, 259 SE2d 681 (1979), held:
It is well settled that form of writing required by the statute is not material. The contract
may be evidenced by one writing or more. It may be shown entirely by written
correspondence. Whatever form the agreement may assume, if the writing or writings,
viewed as a whole, constitute, in essence or substance upon their face, a note or
memorandum in writing, subscribed by the party sought to be charged, showing who the
contracting parties are, the subject matter of the sale, and the consideration, the statute is
satisfied (emphasis added).
In summary, the written contract must contain certain essential elements to make it binding on
the parties involved and may be evidenced by one or more writings. Furthermore, although there
is no legislative history, it is reasonable to conclude that the June 22, 1987 date was chosen since
it was the effective date of Act 170 of 1987 which eliminated the capital gains deduction. This is
a common type of transitional rule often used by the U.S. Congress when it amends the federal
income tax law. Since the statute specifically uses the term "written contract", it is reasonable to
surmise that by limiting the deduction to written contracts that the Legislature wanted to prevent
any disputes as to whether or not an oral contract existed, or when an oral contract became
binding or valid.

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Conclusion:
For purposes of Code Section 12-7-460, a "written contract of sale executed between January 1,
1987 and June 22, 1987" must be an enforceable agreement, which reduces the information to its
essential form of words and figures, under which a seller agrees to convey title to property to a
buyer for a consideration, usually a sum of money. The contract must also have become binding
between January 1, 1987 and June 22, 1987. The contract must contain the names of the
contracting parties, a description of the property or item sold, and the consideration given and
may be the result of one or more "writings".
A "written contract of sale" certainly includes a formally drafted contract, containing all the
terms of the sale, typed or printed on paper and signed by the buyer and the seller (e.g. a contract
to sell the shares of stock of a closely held business). In addition to such formally drafted
contracts of sale, "written contract[s] of sale", for the purposes of Code Section 12-7-460, may
include, but are not limited to:
(1) Binding contracts created by a series of letters, memoranda, and/or notes.
(2) Deeds conveying real estate.
(3) Sales of shares of stock through a recognized stock exchange. The Tax Commission
will accept a confirmation statement issued to the seller by the broker as evidence that the
transaction qualifies as a "written contract of sale".
Note: The various documents outlined below, the information stored in the exchange's
computer, and the information stored in the computers of the seller's and buyer's brokers,
constitute "writings" that together may form a "written contract of sale".
Typically, a person selling shares of stock on an exchange signs a customer's agreement
with a broker; the seller (or the broker on the seller's behalf) then completes a written sell
order; the broker on the seller's behalf wires the order to the broker's employee or
representative at the exchange, or directly to the exchange's computer; and the person at
the exchange and the various computers used by the exchange and the brokers complete
the sale.
SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
s/T. R. McConnell
T. R. McConnell, Commissioner
Columbia, South Carolina
January 3
, 1991
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