UNITED STATES TAX COURT



AMDAHL CORPORATION AND CONSOLIDATED SUBSIDIARIES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 2944-95.                       Filed June 17, 1997.



       P paid relocation expenses of its employees and
     provided financial assistance in connection with
     the sale of their residences. P contracted with
     relocation service companies (RSC) to manage the
     sale of the employees' residences. The RSC paid
     the employees their equity in their homes and paid
     the costs of maintaining the residences, including
     mortgage and property tax expenses, until third
     parties purchased the residences. P reimbursed the
     RSC for its expenses and paid the RSC a fee. The
     relocating employees retained legal title to the
     residences. R disallowed a deduction to P for
     certain payments to the RSC against ordinary income
     and treated the payments as a capital loss. R
     argues that P acquired equitable ownership of the
     residences.
        Held: Neither P nor the RSC acquired legal or
     equitable ownership of the residences for Federal
                                      - 2 -

         income tax purposes. Held, further, P is entitled
         to deduct payments to the RSC as ordinary and
         necessary business expenses. Sec. 162(a), I.R.C.



     Frederick R. Chilton, Jr., Janet S. Bianchi, Paolo M. Dau,

and John J. Steele, for petitioner.

     Andrew P. Crousore and Ewan D. Purkiss, for respondent.



     GERBER, Judge:          Respondent determined deficiencies in

petitioner's Federal income tax as follows:

         Tax Year Ended                       Deficiency

         Dec.   30,   1983                    $25,528,729
         Dec.   28,   1984                      6,245,206
         Dec.   27,   1985                      4,394,198
         Dec.   26,   1986                      4,038,178

     After concessions, the issue for decision is whether

payments made by petitioner to relocation service companies to

assist in the disposition of the homes of its employees who

relocate in connection with their employment are deductible

against ordinary income or must be treated as a capital loss.

                               FINDINGS OF FACTS1

     Petitioner is a Delaware corporation with its principal

place of business in Sunnyvale, California.            It develops,

manufactures, markets, and services large-scale computer systems,

storage products, communications systems, software, and


     1
      The parties' stipulation of facts and the attached exhibits
are incorporated by this reference.
                               - 3 -

educational services.   Petitioner also provides product and

software support for its systems, engages in research and

development, and provides consulting services.

     During the years in issue, petitioner had approximately

6,600 to 7,200 employees worldwide, with about 70 percent of its

employees in the United States.   Petitioner relocates both

current and newly hired employees as its business needs dictate.

Petitioner transfers employees to locations where it has

installed mainframe computers to provide maintenance services to

its customers.   Petitioner also relocates employees as it expands

into new geographic markets to ensure that it has employees at

the new location who are familiar with the company, its products,

and its customers.

     To induce employees to relocate, petitioner provides various

kinds of employee benefits to assist in the move.   Petitioner

reimburses employees for moving costs, including the costs of a

house-hunting trip to the new location; shipment costs for

household goods, personal effects, household pets, and family

vehicles; certain expenses incurred en route to the new location;

temporary living expenses; the costs of a return trip by the

employee to the former location; and additional income tax

incurred as a result of the relocation.   As part of its

relocation program, petitioner also offers financial assistance

to employees in the sale of their homes at their former locations

and in the acquisition of new homes.   Petitioner has provided
                               - 4 -

various forms of home disposal assistance to relocating employees

for the past 20 years.   Petitioner's competitors in the computer

mainframe business provide similar home disposal services to

their employees.

     Petitioner's employee relocation program is part of its

human resource department and is administered by a relocation

administrator under the supervision of a relocation manager.    The

relocation administrator provides information to relocating

employees about available relocation benefits, including the home

disposal assistance.   The relocation administrator and manager

also arrange for shipment of household goods, temporary lodging,

and car rental, and reimburse employees for their moving

expenses.

     To assist employees in the sale of their homes, petitioner

contracts with unrelated relocation service companies.    Pursuant

to petitioner's contract with a relocation service company (RSC),

the RSC offers to purchase the residences of eligible relocating

employees and resell the residences to third parties.    Petitioner

compensates the RSC for all costs incurred in assisting

relocating employees in the sale of their homes and also pays the

RSC a fee for its services.   At various times during the years in

issue, petitioner used either Transamerica Relocation Service,

Inc. (Transamerica), VanRelco, Inc. (VanRelco), or Intergroup

Management Co. and its successor, Associates Intergroup

Management Co. (each, Intergroup) as its RSC.   Generally,
                                - 5 -

petitioner's contracts with Transamerica, VanRelco, and

Intergroup provide for substantially similar home disposal

assistance.

     When petitioner extends a relocation offer to an employee,

petitioner informs the employee of its relocation benefits and

gives the employee a brochure describing the relocation

assistance that petitioner offers.      The brochure provides that

petitioner will assist in the sale of the employee's home with

the aid of a "third-party agent".    If an employee who is eligible

for home disposal assistance agrees to a proposed transfer,

petitioner notifies the RSC to offer to purchase the employee's

home in accordance with petitioner's contract with the RSC.        An

employee's eligibility for home disposal assistance depends on

criteria defined in petitioner's corporate policies and

procedures.   Petitioner does not take into consideration whether

residences will appreciate in value in deciding to provide home

disposal assistance to relocating employees.      Petitioner has not

based its decision to provide relocation assistance on whether

employee residences will appreciate in order to offset the costs

to petitioner for relocation.

     In addition, the RSC does not have discretion over whether

to purchase a particular employee's residence.      The RSC must

offer to purchase an employee's residence if the residence

satisfies certain requirements set forth in petitioner's contract

with the RSC.   Eligible employees are not required to accept the
                                - 6 -

RSC's offer for the residences or to participate in the home

disposal program.    If a relocating employee decides to

participate, petitioner becomes obligated to assist in the

disposition of the employee's home.

     Pursuant to the contract between petitioner and the RSC, the

RSC offers to purchase relocating employees' residences at fair

market value.   Fair market value is determined by averaging two

qualified, independent appraisals.      The employees choose

independent appraisers from a list provided by the RSC.        If more

than two appraisals are obtained, fair market value is the

average of the two closest appraisals.      The RSC sends copies of

all appraisals to petitioner and informs it of the appraised

value.   The RSC's offer expires after a set period, which is

generally 60 days.

     Relocating employees may market their residences during this

offer period.   Employees who market their homes must insert

language in the listing agreement that permits them to accept the

RSC's offer without paying a commission to the listing broker.

If an employee receives a bona fide third-party offer that

exceeds the RSC's offer during the offer period, the employee may

accept the third-party offer and assign the third-party contract

to the RSC (assigned sale).    The employee assigns the third-party

contract by sending the following to the RSC:      (1) An executed

third-party offer, signed by the employee as seller and the third

party as buyer; (2) a contract of sale with the RSC as buyer and
                               - 7 -

the employee as seller; (3) an assignment addendum to the

contract of sale with the RSC; (4) a power of attorney; and (5)

an authorization for the RSC to receive funds from trust accounts

on the employee's behalf.   After the assignment, the RSC handles

all remaining details of the third-party sale and agrees to take

all actions necessary and appropriate to complete the sale.   The

RSC pays seller's closing costs.

     If an assigned third-party sale does not close and the RSC's

offer has not expired, the employee may attempt to find another

buyer during the remaining offer period and assign the sale to

the RSC.   If the RSC's offer has expired, the employee may accept

the RSC's offer or cancel the contract of sale with the RSC and

return all money received from the RSC.   Petitioner is liable to

the RSC for any amount not returned.   During the years in issue,

all assigned sales closed as provided in the third-party sales

contracts.

     Relocating employees who do not receive offers from third

parties may accept the RSC's offer (regular sale) before it

expires.   An employee accepts the RSC's offer by completing a

contract of sale with the RSC as buyer and the employee as

seller, a power of attorney, and an authorization for the RSC to

receive funds from trust accounts on the employee's behalf.   In

the contracts of sale, the RSC agrees to purchase and the

employees agree to sell their residences.   The employees do not

transfer legal title of the residences to the RSC or petitioner.
                                 - 8 -

The contracts of sale between the RSC and the employees require

the employees to transfer marketable title of the residences

within 1 year to a person designated by the RSC.       Generally, the

designated person is the third-party purchaser.       If a third party

has not purchased a residence within 1 year, title passes to the

RSC or an affiliate of the RSC.

     To facilitate the transfer of title to the third-party

purchaser, the employee signs and delivers a deed in blank to the

RSC when the employee accepts the RSC's offer.       The deed in blank

contains a legal description of the property and includes the

relocating employee's signature as grantor and a notary

acknowledgment.    Everything else in the deed, including the name

of the grantee, is left blank.    Neither the deed nor the contract

of sale with the RSC is recorded.    The RSC will not return a deed

to an employee unless told to do so by petitioner.       The RSC holds

the unrecorded deed until it finds a third-party purchaser for

the residence.    At that time, the name of the third-party

purchaser is entered onto the deed as grantee.       The relocating

employee retains legal title to the residence until the sale of

the residence to a third party.

     Under the terms of their contracts of sale with the RSC,

relocating employees generally vacate their residences within 60

days of accepting the RSC's offer.       Under the Intergroup and

VanRelco contracts of sale, employees who continue to occupy the

residences after 60 days must pay rent.       Employees are
                                - 9 -

responsible for maintenance of the residences until they move

out.    Thereafter, the RSC pays for the maintenance costs of the

residences, including the costs of insurance, general property

maintenance, utilities, snow removal, mortgage payments, and

property taxes.    However, employees remain legally responsible

for the mortgage payments and taxes.    In assigned sales,

employees may elect to deliver possession of the residences

directly to the third-party buyers rather than the RSC.      If an

employee delivers possession to the third-party buyer, the

employee remains responsible for the maintenance costs until the

third-party sale closes.

       On the day the employees move out of the residences, the RSC

pays them their equity in the residences.    The RSC may pay up to

a specified percentage (typically 90 percent) of the equity prior

to the vacate date if an employee needs the money to purchase a

new residence.    In such a case, the RSC pays the balance of the

employee's equity on the vacate date.    In a regular sale, the

equity payment is the appraised value of the residence as of the

vacate date less the prorated unpaid balances of all loans

secured by the property, prorated accrued interest, prorated real

property taxes, prorated owner's dues, fees, and maintenance

charges, and certain estimated costs of repairs recommended by a

recognized termite or pest control company.    In an assigned sale,

the equity payment is computed using the appraised value as of

the estimated closing date for the third-party sales contract.
                                - 10 -

When an assigned sale closes, the RSC pays the employee the

difference between the equity payment and the net sales price

from the third-party sale.

     In a regular sale, the RSC lists the residence for sale

through a real estate broker.    The RSC recommends repairs,

improvements, and maintenance that would expedite the residence's

sale. Petitioner must authorize the repair or improvement, and

the RSC makes the appropriate arrangements.    The RSC also advises

petitioner of its activities in connection with the sale of the

residences and informs petitioner of any offers that it receives.

Petitioner's contract with the RSC gives the RSC authority to

reject or accept any bona fide third-party offer.    Petitioner

must approve any offers that are below a specified percentage

(either 92 or 94 percent) of the appraised value.    In practice,

however, the RSC consults with petitioner and follows

petitioner's recommendations regarding all third-party offers.

     In general, the RSC sends the net sales proceeds from the

third-party sale to petitioner when the sale closes.    If a third

party purchases the residence at a price below the appraised

value, the RSC charges the loss from the sale to petitioner's

account.   Conversely, the RSC credits a gain from a third-party

sale to petitioner.   Petitioner then pays the gain to the

employee who owns the residence.

     Petitioner reimburses the RSC for the equity payments and

for all costs that the RSC incurs in connection with the
                                - 11 -

disposition of relocating employees' residences.   Reimbursed

costs include expenses for:    appraisal and inspection, repair and

maintenance, improvements, utilities, insurance, property taxes,

homeowner association fees, mortgage payments, other expenses

directly attributable to specific residences, interest charged on

direct and indirect expenses, gain or loss on the sale to third

parties, broker commissions, and other closing costs.   In

addition, petitioner pays the RSC a fee of 1.25 percent of the

appraised value of the residences in regular sales, and either .5

percent (Intergroup) or 1 percent (Transamerica and VanRelco) of

the appraised value in assigned sales.   The RSC bears no risk of

loss in connection with the sale of the residences.

     During the years in issue, petitioner provided home disposal

assistance to at least 188 employees, 176 of which are in issue.

Approximately 74 percent of the home sales in issue were regular

sales, and 26 percent were assigned sales.   Petitioner did not

intend to acquire legal title to the residences.   It viewed the

costs associated with assisting relocating employees in the sale

of their residences as an expense of conducting its computer

business and did not intend to profit from the sale of the

residences to third parties.    Petitioner was primarily concerned

with inducing employees to relocate and ensuring that the

residences were sold quickly.    Petitioner generally does not hold
                             - 12 -

itself out as the owner or purchaser of the employees'

residences.2

     For regular sales during the years in issue, the average

length of time between acceptance of the RSC's offer and passage

of title to the third-party purchaser was as follows:

                              Holding Period
               Year                Days
               1983                 102
               1984                 159
               1985                 186
               1986                 147

For assigned sales during the years in issue, the average length

of time between assignment of the third-party contract to the RSC

and passage of title to the third-party purchaser was as follows:

                              Holding Period
               Year                Days
               1983                 44
               1984                 44
               1985                 44
               1986                 54

     During the years in issue, gross proceeds from sales of

residences to third parties in regular and assigned sales were as

follows:



     2
        Respondent offers a single document, a letter written by
petitioner's relocation administrator to a mortgage company, to
support the contention that petitioner holds itself out as the
purchaser of employee residences. The letter identifies
petitioner as purchasing an employee's home and paying the
employee his equity in the residence. However, petitioner did
not normally write letters of this type and typically referred
inquiries by mortgage lenders to the relocation service company
(RSC). We give little weight to the letter as no other evidence
indicates that petitioner held itself out to third parties as the
owner of the residences.
                             - 13 -

                  Year        Gross Sales Proceeds
                  1983             $4,762,863
                  1984              5,583,176
                  1985              5,919,630
                  1986              4,941,356

Petitioner did not report any portion of the sales proceeds as

gross receipts on its income tax returns for the years in issue.

Petitioner deducted certain payments to the RSC as ordinary and

necessary business expenses, including the loss from sales of

residences to third parties at a price below the appraised value.

Respondent disallowed the deduction against ordinary income on

the ground that the payments were capital losses.    Respondent

increased petitioner's taxable income in the following amounts:3

                  Year                  Increase
                  1983                  $227,208
                  1984                   733,953
                  1985                   707,805
                  1986                   490,134

Petitioner did not report any capital gain or loss during the

years in issue.

                         OPINION

     Petitioner contends that its payments to the RSC to assist

relocating employees in selling their residences are a form of


     3
        Respondent's determination is expressed as a single
adjustment for each taxable year in issue. In the determination,
respondent treated petitioner as the owner of the residences and
treated certain payments to the RSC as capital rather than
ordinary income items. However, it is not clear from the briefs
or record how respondent computed the adjustment to petitioner's
taxable income and which relocation expenses were disallowed.
Because of our conclusion that petitioner is not the owner of the
residences in either substance or form, it is unnecessary for us
to analyze that aspect of the adjustment.
                               - 14 -

employee benefits and are fully deductible under section 162(a).4

Section 162(a) allows a deduction for ordinary and necessary

expenses paid or incurred during the taxable year in carrying on

a trade or business.    Sanford v. Commissioner, 

, 826

(1968), affd. per curiam 

(2d Cir. 1969).      Losses

from the sale of capital assets by corporate taxpayers are

deductible only to the extent of capital gains.    Secs. 165(f),

1211(a).   Deductions are a matter of legislative grace, and

taxpayers bear the burden of proving that they are entitled to

the deductions claimed.    Rule 142(a); INDOPCO, Inc. v.

Commissioner, 

, 84 (1992).

     Respondent contends that petitioner acquired ownership of

the residences of its relocating employees in both regular and

assigned sales and that in petitioner's possession the residences

are capital assets.    Accordingly, respondent argues that

petitioner cannot deduct the payments to the RSC against ordinary

income under section 162.    Although petitioner never took title

to its employees' residences, respondent determined that in

substance petitioner, by its control over the property, was the

owner.   Respondent's position thus follows the ruling position

that relocating employees' homes purchased by their employer to

assist the employees in the sale of the residences are capital


     4
       All section references are to the Internal Revenue Code in
effect for taxable years in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
                                - 15 -

assets under section 1221 when resold by the employer.      Rev. Rul.

82-204, 1982-2 C.B. 192.    Respondent infers that petitioner

structured these relocation transactions to convert capital loss

into deductions against "ordinary" income.    To determine whether

petitioner is entitled to deduct the payments to the RSC, we

first address the threshold question of whether petitioner

acquired ownership of the residences.    If petitioner were found

to be the owner of the residences, we would then need to

determine whether the residences were capital or ordinary income

assets.

     The economic substance of a transaction, rather than its

form, controls in determining whether the transaction constitutes

a sale for Federal tax purposes.     Gregory v. Helvering, 

(1935); Derr v. Commissioner, 

(1981).       We

consider the objective economic realities of a transaction to

determine its tax consequences.     Frank Lyon Co. v. United States,

, 573 (1978); Houchins v. Commissioner, 

,

589 (1982).    Whether petitioner became the owner of the

residences for Federal tax purposes is a question of fact to be

determined from the written agreements and all relevant facts and

circumstances.    Reinberg v. Commissioner, 

, 132

(1988); Grodt & McKay Realty, Inc. v. Commissioner, 

,

1237 (1981).    Respondent argues that the transactions between the

RSC and relocating employees constitute sales of the employees'

residences to the RSC.     Respondent further contends that the RSC
                               - 16 -

acted as petitioner's agent, making petitioner the owner of the

residences.    Petitioner denies that the RSC was its agent and

asserts that the RSC was the agent of relocating employees to

transfer ownership of the residences from the employees to third-

party purchasers.

     The term "sale" is given its ordinary meaning and is

generally defined as a transfer of property for money or a

promise to pay money.    Commissioner v. Brown, 

(1965).   For Federal tax purposes, State law controls whether a

taxpayer has an ownership interest in property, and the tax

consequences of property ownership are then determined under

Federal law.    United States v. National Bank of Commerce, 

, 722 (1985).    However, a sale occurs for Federal tax

purposes upon the transfer of the benefits and burdens of

ownership rather than upon the satisfaction of technical

requirements for the passage of title under State law.

Yelencsics v. Commissioner, 

, 1527 (1980); Clodfelter

v. Commissioner, 

, 700 (1967), affd. 

(9th Cir. 1970).

     Whether the benefits and burdens of ownership have been

transferred is a question of fact.      In Grodt & McKay Realty v.

, we identified the following factors to

consider in determining whether a transaction constitutes a sale:

           (1) Whether legal title passes; (2) how the
           parties treat the transaction; (3) whether
           an equity was acquired in the property;
                               - 17 -

          (4) whether the contract creates a present
          obligation on the seller to execute and
          deliver a deed and a present obligation on
          the purchaser to make payments; (5) whether
          the right of possession is vested in the
          purchaser; (6) which party pays the property
          taxes; (7) which party bears the risk of loss
          or damage to the property; and (8) which
          party receives the profits from the operation
          and sale of the property. * * * [Id. at 1237-
          1238; citations omitted.]

     Although passage of a title is not determinative, it is an

important factor in whether a sale has occurred.      Harmston v.

Commissioner, 

, 229 (1973), affd. 

(9th

Cir. 1976); Ryan v. Commissioner, T.C. Memo. 1995-579.

Relocating employees delivered signed deeds to the RSC that

omitted the names of the grantees.      The employees authorized the

RSC, by a power of attorney, to fill in the grantees' names.

Respondent concedes that petitioner did not acquire legal title

to the residences.   Title remained with the relocating employees

and passed directly to the third-party purchasers.

     As petitioner did not acquire legal ownership of the

residences, we must determine whether it acquired beneficial

ownership of the residences.   Deyoe v. Commissioner, 

,

910 (1976).   We find that petitioner did not acquire beneficial

ownership of the residences.   In part, respondent's argument that

petitioner owned the residences is based on an agency

relationship existing between petitioner and the RSC.     Respondent

cites petitioner's relocation brochure which refers to the RSC as

a third-party agent as evidence of the agency relationship
                               - 18 -

between petitioner and the RSC.    The contractual terms defining

the relationship between petitioner and the RSC coupled with

petitioner's reimbursement of RSC expenses does not provide a

sufficient basis to find that the RSC was an agent of petitioner

for the purpose of acquiring real property.    If the RSC was an

agent, it would be the agent of relocating employees because the

RSC had authority to transfer ownership to third-parties by

filling in the names of grantees on the deeds in blank.      There is

no legal basis to find that, in substance, the RSC acted as

petitioner's agent.    Even if we found the RSC to be petitioner's

agent, there would be no enforceable way for petitioner to

control the agency relationship without a writing that satisfies

the Statute of Frauds.    A determination that the RSC was

petitioner's agent would be substance without reality.    However,

we find that the RSC did not acquire beneficial ownership of the

residences, and we do not need to rely on the lack of an agency

relationship between petitioner and the RSC in our decision that

petitioner is not the owner of the residences.

     Nothing in the record indicates that the parties treated the

transaction as a sale between the RSC and relocating employees.

Petitioner purposefully structured the financial assistance it

provided to relocating employees in the sale of their homes to

avoid taking legal title to the residences.    The parties did not

intend to transfer ownership of the residences through the

contracts of sale.    In addition, there is no evidence that
                                  - 19 -

petitioner intended to acquire legal title to the residences at

some future time. Petitioner generally did not hold itself out as

the purchaser or owner of the residences.

       Respondent contends that the parties entered into binding

contracts for the sale of the residences.        Respondent relies on

language in the contracts of sale that identifies the RSC as the

purchaser and the employees as the sellers and provides that the

RSC agrees to purchase and the employees agree to sell the

residences.       However, the RSC's obligation to purchase the

residences was conditional, and the contracts of sale were

executory in nature.       The contracts of sale did not purport to

convey ownership of the residences to either petitioner or the

RSC.       Although in some circumstances an executory contract may

constitute a sale for Federal tax purposes, this is not one of

them.5

       Relocating employees did not have a present, legally

enforceable right to compel the RSC to purchase the residences.

Under the terms of the contract of sale, a relocating employee

agreed to convey title to the residence at the RSC's request to

the RSC or a person it designates.         The contracts delayed passage

of title to the RSC for 1 year from the date the parties entered



       5
       Even if the RSC is considered the buyer, the RSC's
relationship with petitioner will not ipso facto result in the
ownership’s being attributed to petitioner for Federal tax
purposes.
                               - 20 -

into the contracts.    Title passed to the RSC only if a third

party did not purchase the residence within that year.    Thus, the

RSC did obtain the present right to acquire title to the

residences.   We find that the parties treated the transactions as

resulting in possible future sales of the residences to the RSC

and not as completed, present sales.

     The contracts of sale did not require the RSC to pay the

full purchase price of the residences.    Under the terms of the

contracts of sale, the purchase price of a residence was its

appraised value.   The RSC was not obligated to pay the full

purchase price and only paid the employees their equity in the

residences, which was defined as the appraised value less unpaid

mortgages, real property taxes, and other expenses associated

with the residences.   Neither petitioner nor the RSC assumed

personal liability for the mortgages on the residences.    Rather,

the RSC agreed to make mortgage payments and pay other costs of

ownership from the vacate date until a third-party sale occurred.

Petitioner reimbursed the RSC for these costs.

     Respondent contends that the equity payments were sufficient

to give petitioner an equity interest in the residences.     We

disagree.   The equity payment did not give petitioner the

opportunity to benefit as the owner of the residences through

appreciation in the residences' value.    Relocating employees

received the appreciation in the residences' value realized from

the third-party sales.   Generally, the RSC paid the employees
                               - 21 -

their equity in the homes on the vacate date.     In assigned sales,

the RSC paid the difference between the equity payment and the

final sales price from the third-party sale directly to the

employees when the third-party sales closed.     In regular sales,

the RSC credited any gain from a third-party sale to petitioner's

account.    Although not contractually obligated to do so,

petitioner paid the gain to the employee who owned the residence.

Respondent argues that petitioner did not in fact pay the gain

over to the employees as it claims.     However, we find no reason

to doubt petitioner's contention.    As petitioner did not profit

from the sale of the residences, it is difficult for us to say

that it was purchasing an ownership interest with the equity

payments.    At best, petitioner could recover the payments if the

residences sold to third parties at their appraised values.

     In addition, petitioner's actions with respect to the

residences were inconsistent with those of an owner.     Petitioner

was not interested in the home's long-term appreciation.     It was

concerned with quick sales of the residences even if the sales

were at below the appraised value.      Petitioner viewed the costs

of the home disposal program as an expense of conducting its

mainframe business and not as an investment in real estate.

Petitioner paid the costs of home disposal, as well as other

relocation costs of its employees, to induce employees to move

and to speed the relocation process.
                              - 22 -

     The real benefit that petitioner received was the transfer

of employees to locations as required by its computer business.

The transactions were structured to encourage employees to accept

petitioner's offer to transfer.   The contracts of sale gave

petitioner a means to provide relocating employees their equity

in their residences before the residences were sold.   This

enabled relocating employees to purchase new residences with a

minimum of delay.   The contracts also relieved relocating

employees of the duplicate burden of paying the costs of a

mortgage, property tax, and other costs of home ownership for

both their new and former residences.   However, relocating

employees were still legally responsible for the mortgage and tax

expenses of their former residences.    Payments on the mortgages

or for other expenses relating to property ownership were for the

benefit of relocating employees and not for petitioner to acquire

an equity interest in the residences.   The purported sales were

nothing more than a way for an employer to subsidize the costs of

its employees' transfers.

     As part of the relocation program, petitioner protected its

relocating employees from the risk of loss on the sale of their

residences.   The equity payments were not contingent on the sale

of the residences to third parties, and petitioner assumed the

risk of loss on the sale.   Although petitioner assumed certain

risks of loss in connection with its employees' residences, in

substance, we find that petitioner was reimbursing the costs of
                               - 23 -

employees' relocations.   In addition, any risks of loss that

petitioner was subjected to were insignificant in comparison to

the primary motives of petitioner.      Petitioner's financial stake

in the residences was limited and consisted of the maintenance

costs and equity payments.    Petitioner was indemnified for the

equity payments and maintenance expenses from the proceeds of the

sale to third parties.    The residences were generally sold to

third parties within a few months of the contracts of sale, and

maintenance expenses paid by petitioner during that short time

were small in comparison to the residences' value.     In addition,

the equity payments were based on the residences' appraised

value.   The risk that the residences could not be sold at their

appraised values, although controlled by market conditions, is

insufficient in this setting to reach the conclusion that

petitioner, in substance, became the residences' owner for

Federal tax purposes.

     As noted by respondent, relocating employees gave up the

right to use the residences and control their disposition.

Relocating employees had no say in the decision to accept third-

party offers after entering the contracts of sale.     Petitioner

acquired control over the disposition of the residences.

Pursuant to the terms of the RSC contract, the RSC had authority

to accept or reject any offer within a specified percentage of

the residences' appraised value.    In practice, however, the RSC

consulted with petitioner over whether to accept or reject a
                               - 24 -

particular offer, and petitioner made all decisions regarding the

disposition of the residences.    Petitioner did not have a

contractual right to dispose of the residences or to convey the

residences to itself.    Petitioner's control over the residences

does not make it the owner of the residences.    When a property

owner grants an option to purchase property, the owner may

relinquish control over the disposition of the property but

retain ownership of the property until the option is exercised.

See Penn-Dixie Steel Corp. v. Commissioner, 

, 844-845

(1978).

     We view petitioner's control over the residences to be a

form of security for petitioner to control the amount of its

relocation expenditures.    The purpose of the deed in blank was to

facilitate the sale to a third party because many employees moved

to the new location before the third-party sale occurred.     It was

not the purpose of the deed in blank to enable the RSC to gain

title to the property.    The contracts of sale also protected

petitioner so that it would be indemnified for its equity and

maintenance payments.    To that end, the contracts of sale

provided that in the event that the employees defaulted, the

equity payment was refundable.    Upon refund of all money received

from the RSC, the contracts of sale would terminate.    The default

and termination provisions are inconsistent with the acquisition

of equitable ownership of the residences.    We find that
                               - 25 -

petitioner's control over the residences was not as the owner of

the residences.

     In addition, relocating employees, not petitioner,

controlled the disposition of the property in assigned sales.

Relocating employees decided whether to accept the third-party

offers.    If a third-party sale fell through, the employee

retained the power to dispose of the residence.    The employee

could cancel the contract of sale with the RSC.    Respondent would

have us characterize the assigned sales as purchases of the

residences by petitioner subject to possible repurchases by

relocating employees if the assigned third-party sales fell

through.    At no time did petitioner control the disposition of

the property.    Respondent's characterization of assigned sales

takes substance over form to the extreme, which we refuse to do.

     After a careful review of the transactions in their

entirety, we find that petitioner did not acquire beneficial

ownership of the residences of its relocating employees.

Although some aspects of the agreements between the RSC and

relocating employees support respondent's contention, the most

significant factors in this case, relocating employees' retention

of legal title, the intent of the parties, the executory nature

of the contracts of sales, and the employees' receiving any

profits from the sale to third parties, demonstrate that

relocating employees retained the benefits and burdens of

ownership of the residences.    Under the facts and circumstances
                               - 26 -

of this case, petitioner was not the owner of the residences of

its relocating employees for Federal income tax purposes in

either regular or assigned sales.

     Having decided that petitioner is not the owner of the

homes, we decide petitioner is entitled to deduct the payments to

the RSC under section 162(a) as ordinary and necessary business

expenses.    An ordinary and necessary expense is one that is

appropriate and helpful to the taxpayer's business and that

results from an activity which is a common and accepted practice.

Boser v. Commissioner, 

, 1132 (1981).    Section 162(a)

permits a deduction for reasonable compensation, including

employee benefits.    Sec. 1.162-10(a), Income Tax Regs.

Petitioner relocated its employees to satisfy business needs and

provided home disposal assistance to induce its employees to

accept its offer of relocation.    Petitioner's competitors in the

mainframe computer business provided similar assistance to their

employees.    The payments to the RSC are similar to reimbursement

of moving costs which are deductible business expenses.

Respondent did not dispute that in the event we found petitioner

not to be the owner of the residences of its relocating

employees, the payments to the RSC were ordinary and necessary

business expenses.    We find that the payments to the RSC

conferred employee benefits to relocating employees and are

deductible business expenses under section 162(a).
- 27 -

     Decision will be entered

under Rule 155.