Tax Implications of the EquityKey™ Upfront Option Payment to the Property Owner

The option payment fits into one of two possible categories for tax consideration.

First, the option may be treated as just that, an option, which is considered an open transaction for tax purposes - the effect of which is determined at the time the option is exercised, sold or lapses. (Rev. Rul. 78-182, 1978-1 C.B. 265).

Alternatively, the option may be treated as a forward contract, which in effect should have a very similar tax consequence as an open transaction. (Rev. Rul.74-223, 1974-1 C.B. 23).

It is important that your tax advisor make his or her determination of the tax consequence of the payment and transaction. The references to the revenue rulings above should help the tax advisor.