[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.44-3]

[Page 199-203]
 
                       TITLE 26--INTERNAL REVENUE
 
     CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
 
PART 1--INCOME TAXES--Table of Contents
 
Sec. 1.44-3  Certificate by seller.

    (a) Requirement of certification by seller. Taxpayers claiming the 
credit should attach Form 5405, Credit for Purchase or Construction of 
New Principal Residence, to their tax returns on which the credit is 
claimed. Except in the case of self-construction (as defined in 
Sec. 1.44-5(d)), taxpayers must attach a certification by the seller 
that construction of the residence began before March 26, 1975, and that 
the purchase price is the lowest price at which the residence was 
offered for sale after February 28, 1975. For purposes of section 
44(e)(4) and this section, the term ``price'' generally does not include 
costs of acquisition other than the amount of the consideration from the 
purchaser to the seller. However, for rules relating to adjustments in 
price due to changes in financing terms and closing costs see paragraph 
(d)(2) of this section.
    (b) Form of certification. The following form of the certification 
statement is suggested:

    I certify that the construction of the residence at (specify 
address) was begun before March 26, 1975, and that this residence has 
not been offered for sale after February 28, 1975 in a listing, a 
written private offer, or an offer by means of advertisement at a lower 
purchase price than (state price), the price at which I sold the 
residence to (state name, present address, and social security number of 
purchaser) by contract dated (give date).
    (Date, seller's signature and taxpayer identification number.)


However, any written certification filed by the taxpayer will be 
accepted provided that such certification is signed by the seller and 
states that construction of the residence began before March 26, 1975, 
and that the purchase price of the residence is the lowest price at 
which the residence was offered for sale after February 28, 1975. With 
regard to factory-made homes the seller, in the absence of his own 
knowledge as to the commencement of construction, may attach to his own 
certification a certification from the manufacturer that construction 
began before March 26, 1975, and may certify based on the manufacturer's 
certification. It is suggested that both certifications include the 
serial number, if any, of the residence.
    (c) Offer to sell. (1) For purposes of section 44(e)(4) and this 
section, an offer to sell is limited to an offer to sell a specified 
residence at a specified purchase price.
    (2) An ``offer'' includes any written offer, whether made to a 
particular purchaser or to the public, and any offer by means of 
advertising. Advertising includes an offer to sell published by 
billboards, flyers, brochures, price lists (unless the lists are 
exclusively for the internal use of the seller and are not made 
available to the public), mailings, newspapers, periodicals, radio, or 
television. The listing of a property with a real estate agency, the

[[Page 200]]

filing of a prospectus and the registration of construction plans and 
price lists with the appropriate authorities (in the case of 
condominiums or cooperative housing developments) are to be considered 
offers made to the public.
    (3) An offer to sell a specified residence includes:
    (i) Both an offer to sell an existing residence and an offer to 
build and sell a residence of substantially the same design or model as 
that purchased by the taxpayer on the same lot as that on which the 
taxpayer's new principal residence was constructed. It does not include 
an offer to sell the same model residence on a different lot. Where a 
residence of a particular design or model is offered at a specific base 
price, additions of property to the residence, no matter how extensive, 
will not result in the residence being treated as a different residence 
for the purpose of determining the lowest offer (as defined in paragraph 
(f) of Sec. 1.44-5).
    (ii) In the case of a condominium or cooperative housing development 
where units are offered for sale on the basis of models (e.g., all Model 
C two-bedroom apartments sell at a specified base price), an offer to 
sell a specified residence includes an offer to sell a specific type of 
unit (with appropriate adjustments to be made for the location of such 
unit and as provided in paragraph (d) of this section).
    (iii) In the case of a factory-made home, an offer to sell a 
specified residence includes an offer to sell the same model home as 
that purchased by the taxpayer, provided that the offer is made after 
the seller has the right to sell the home purchased by the taxpayer 
(i.e., has that specific home in his inventory). However, it does not 
include an offer to sell such home with land which is not included in 
the taxpayer's purchase nor an offer to sell such home without land 
which is included in the taxpayer's purchase. Appropriate adjustments to 
a prior offer shall be made as provided in paragraph (d) of this 
section, including adjustments for any delivery and installation charges 
as provided in paragraph (d)(3).
    (iv) The rules of this subparagraph may be illustrated by the 
following examples:

    Example 1. In March 1975 A advertised colonial-style homes on 
section I of subdivision C at a base price of $40,000. At the time none 
of the homes had been completed but construction of all homes on section 
I was commenced before March 26, 1975. After one-half of the homes were 
sold, A offers to sell the remaining homes in May 1975 at a base price 
of $45,000. Under the facts above the base price of $45,000 is not the 
lowest offer since the seller had offered to sell the same model home on 
the same lot at a lower purchase price after February 28, 1975.
    Example 2. In June 1975 A offers houses, otherwise qualifying, on 
section II for the first time for a base price of $50,000. They are 
colonial homes and substantially the same as the homes he previously 
offered on section I. Under the facts stated above the base price of 
$50,000 is the lowest offer since the same model home on the same lot 
was not previously offered for sale.
    Example 3. In March 1975 B, a condominium developer, offers to sell 
any two-bedroom unit in a particular high rise condominium for $45,000 
with an added $5,000 for units with a lakefront view and an additional 
$2,000 for units on higher floors. With regard to all two-bedroom units 
in the condominium an offer to sell a specified residence at a specified 
purchase price has been made. This is true even though at the time of 
the offer construction had not reached the floor on which the particular 
unit will be located.

    (4) A specified purchase price means a stated definite price for a 
particular residence or a specific base price for a residence of a 
particular model or design. An offer to sell for an indefinite price 
(e.g., an advertisement that all houses sell in the $40,000's) is not 
considered an offer to sell at a specified purchase price.
    (5) An offer to sell includes an offer to sell subject to special 
conditions imposed by the seller. Thus, if the lowest price at which a 
house was advertised was ``at $40,000 for March only'', the $40,000 
price would be the lowest offer. However, certain conditions may 
necessitate adjustments in determining the lowest offer. See paragraph 
(d) of this section.
    (6) An offer to sell two or more residences together as for example, 
in a bulk sale shall be disregarded, even though each residence is 
assigned a specific purchase price for the purpose of such a sale. With 
regard to factory-made homes an offer to sell does not include an offer 
made by the manufacturer to a dealer in such homes.

[[Page 201]]

    (7)(i) Where new residences are purchased at a foreclosure sale 
(including a conveyance by the owner in lieu of foreclosure) and prior 
to the foreclosure sale such residences had been offered for sale by the 
foreclosure seller at specified prices, the foreclosure purchaser is 
bound by such prices in determining the lowest offer. He is not bound by 
the prices paid to the foreclosure seller since such prices do not 
constitute voluntary offers.
    (ii) For this purpose, if the foreclosure seller and foreclosure 
purchaser are not related parties (as defined in subdivision (iii) of 
this subparagraph), and if the foreclosure purchaser does not have 
knowledge of the date of commencement of construction and the lowest 
offer made by such seller with respect to each of the foreclosed 
residences, the foreclosure purchaser must request and try to obtain 
from the foreclosure seller a certificate specifying such facts. Upon a 
subsequent sale of a particular residence by the foreclosure purchaser, 
he must certify whether the price is the lowest offer for that 
particular residence based on the certification of the foreclosure 
seller, a copy of which must be attached to the certification of the 
foreclosure purchaser. If the foreclosure seller refuses to so certify, 
the foreclosure purchaser must make a reasonable effort to determine the 
date construction commenced and the lowest offer made by the foreclosure 
seller. For this purpose, reasonable effort includes the effort to 
locate and examine advertising and listings published or used by the 
foreclosure seller. If the foreclosure seller and foreclosure purchaser 
are related parties (as defined in subdivision (iii) of this 
subparagraph), the foreclosure purchaser will be considered as having 
knowledge of the date of the commencement of construction and the lowest 
offer made by such seller with respect to each of the foreclosed 
residences, and, upon a subsequent sale of a particular residence by the 
foreclosure purchaser, he must comply with the certification 
requirements prescribed by paragraphs (a) and (b) of this section.
    (iii) For purposes of this subparagraph related parties shall 
include the relationships described in subparagraph (2) of Sec. 1.44-
5(c), and the constructive ownership rules of section 318 shall apply, 
but family members for this purpose shall include spouses, ancestors, 
and lineal descendants.
    (d) Adjustments in determining lowest price. (1)(i) In determining 
whether a residence was sold at the lowest offer appropriate adjustment 
shall be made for differences in the property offered and in the terms 
of the sale. Where the sale to the taxpayer includes property which was 
not the subject of the prior offer or excludes property which was 
included in the prior offer, the amount of the prior offer shall be 
adjusted to reflect the fair market value of such property, provided 
that, in the case of property included in the sale which was not a part 
of the residence at the time of execution of the contract of purchase, 
the taxpayer had the option to require inclusion or exclusion of such 
property. The fair market value of any excluded property is to be 
determined at the time of the prior offer, while all additions are to be 
valued at their fair market value on the date of execution of the 
contract of sale. If a seller increases his present offer to include 
financing or other costs of the seller in connection with his ownership 
of the residence, the present offer does not qualify as being the lowest 
offer.
    (ii) The rules in subdivision (i) of this subparagraph are 
illustrated by the following examples:

    Example 1. A offered to sell a new home without a garage for 
$35,000. Having found no buyers A added a garage and sold the home for 
$40,000. At the time the contract of sale was executed the fair market 
value of the garage was $5,000. The offer to sell for $40,000 qualifies 
since it equals the seller's lowest offer plus the fair market value of 
the garage.
    Example 2. B, unable to sell colonial-style homes presently under 
construction and previously offered for sale for $40,000, makes 
extensive changes in decor and identifies the homes as his new 
Williamsburg model. The Williamsburg models are not different residences 
for purposes of this section. To the extent that the additions have not 
yet been added at the time of execution of a contract of sale, in order 
to qualify for the credit the taxpayer must have the option as to 
whether to include these additions, and if these additions are included 
B must charge no more than the fair market value of the additions

[[Page 202]]

on that date of execution of the contract of sale.

    (2) Appropriate adjustment to a prior offer to sell shall be made 
for differences in financing terms and closing costs which increase the 
seller's actual net proceeds and the purchaser's actual costs. A seller 
may pass on to the purchaser without affecting the purchase price only 
those additional amounts he is required to expend in connection with 
such differences. The seller may not by changing the financing terms or 
closing costs indirectly increase the purchase price. For these purposes 
closing costs include all charges paid at settlement for obtaining the 
mortgage loan and transferring real estate title. Thus, for example, 
where a seller previously offered a residence for sale for $40,000 and 
agreed to pay financing ``points'' required by the mortgagee, and now 
offers the same residence also for $40,000 but requires the purchaser to 
pay the points, the present offer does not constitute the lowest offer. 
On the other hand, a prior offer to sell based upon a large down payment 
by the prospective purchaser may be adjusted to reflect the additional 
costs to the seller of accepting a small down payment from the taxpayer. 
For purposes of determining the seller's net proceeds, proceeds received 
by all related parties within the meaning of section 318 must be taken 
into account. For purposes of determining the lowest offer, where an 
offer provided for a rebate (e.g., of cash or of a contribution toward 
mortgage payments) or included, without additional charge or at less 
than fair market value, property not normally included in the sale of a 
residence (e.g., an automobile), such offer must be reduced by the 
amount of such rebate or by the amount by which the fair market value of 
such property at the time of the offer exceeds the amount paid for it by 
the purchaser. Thus, where a residence was advertised for sale at 
$40,000, but the seller agreed to pay $200 a month on the purchaser's 
mortgage for 10 months, such residence is considered to have been 
offered for sale at $38,000.
    (3) In the case of a factory-made home, where delivery and 
installation costs are included in the specified base price of such home 
an appropriate adjustment is to be made in such specified base price for 
differences in the fair market value of the delivery and installation in 
determining the lowest offer.
    (e) Civil and criminal penalties. If a person certifies that the 
price for which the residence was sold does not exceed the lowest offer 
and if it is found that the price for which the residence was sold 
exceeded the lowest offer, then such person is liable (under section 
208(b) of the Tax Reduction Act of 1975) to the purchaser for damages in 
an amount equal to three times the excess of the certified price over 
the lowest offer plus reasonable attorney's fees. No income tax 
deduction shall be allowed for two-thirds of any amount paid or incurred 
pursuant to a judgment entered against any person in a suit based on 
such liability. However, attorney's fees, court costs, and other such 
amounts paid or incurred with respect to such suit which meet the 
requirements of section 162 are deductible under that section. In 
addition, an individual who falsely certifies may be subject to criminal 
penalties. For example, section 1001 of Title 18 of the United States 
Code provides as follows:

Sec. 1001  Statements or entries generally.

    Whoever, in any matter within the jurisdiction of any department or 
agency of the United States knowingly and willfully falsifies, conceals 
or covers up by any trick, scheme, or device a material fact, or makes 
any false, fictitious or fraudulent statements or representations, or 
makes or uses any false writing or document knowing the same to contain 
any false, fictitious or fraudulent statement or entry, shall be fined 
not more than $10,000 or imprisoned not more than five years, or both.


The treble damages and criminal sanctions provided under this paragraph 
apply only with regard to false certification as to the lowest offer, 
not to false certification as to commencement of construction. However, 
with regard to false certification as to commencement of construction 
there may exist contractual or tort remedies under State law.
    (f) Denial of credit. In the absence of the taxpayer's participation 
in, or knowledge of, a false certification by the seller, the credit is 
not denied to a taxpayer who otherwise qualifies for

[[Page 203]]

the credit solely because the seller has falsely certified that the new 
principal residence was sold at the lowest offer. However, if 
certification as to the commencement of construction is false, no credit 
is allowed since such residence does not qualify as a new principal 
residence construction of which began before March 26, 1975.

[T.D. 7391, 40 FR 55852, Dec. 2, 1975]