CEO 77-99 -- July 21, 1977

FULL AND PUBLIC DISCLOSURE

REPORTING INCOME AND PRINCIPAL RECEIVED ON MORTGAGE OR AGREEMENT FOR DEED

To: Robert M. Deehl, Judge, Dade County Court, Miami

Prepared by: Phil Claypool

SUMMARY:

Section 8, Art. II, State Const., commonly known as the Sunshine Amendment, requires each elected constitutional officer to file full and public disclosure of his financial interests, including either a copy of his most recent income tax return or a sworn statement which identifies each separate source and amount of income which exceeds $1,000. Pursuant to the rulemaking authority granted the Commission on Ethics in subsection (h)(1) of the amendment, we have ruled that reporting officials choosing to file a sworn statement showing sources of income in excess of $1,000 shall follow federal income tax principles in so disclosing. While the Internal Revenue Code does not specifically define the term "income," it does define "gross income" to mean "all income from whatever source derived," including 15 specific examples of income, one of which is "interest." Accordingly, where a disclosing person received an amount on a mortgage or agreement for deed, half of which was return of principal and half of which was interest, such interest would have to be disclosed if it exceeded $1,000. Similarly, if such mortgage or agreement for deed was acquired for less than face value, the amount of profit is required to be disclosed if it exceeds $1,000.

QUESTIONS:

1. In filing full and public disclosure of sources and amounts of income, if $1,800 was received on a mortgage or agreement for deed, half of which was return of principal and half of which was interest, would the amount of interest have to be reported?

2. In filing full and public disclosure of sources and amounts of income, if a mortgage or agreement for deed was acquired for less than face value (such as a 1/3 discount, in which case the $1,800 amount received would be 2/3 repayment of investment and 1/3 profit), would the amount of profit have to be reported?

Question 1 is answered in the affirmative if the amount of interest exceeds $1,000.

The Sunshine Amendment, s. 8, Art. II, State Const., requires each elected constitutional officer to file full and public disclosure of his financial interests, including either a copy of his most recent federal income tax return or a sworn statement which identifies each separate source and amount of income which exceeds $1,000. Pursuant to the rulemaking authority granted us by subsection (h)(1) of the amendment, we have promulgated the following rule relative to the reporting of income:

Reporting officials choosing to file a sworn statement disclosing all sources and amounts of income in excess of $1,000 shall follow federal income tax principles pursuant to the Internal Revenue Code of 1954, Title 26, United States Code, as amended. [Rule 34-8.06, F.A.C.]

Accordingly, your question should be answered by reference to federal income tax principles.

While the Internal Revenue Code does not specifically define the term "income," 26 U.S.C.A. s. 61(a) does provide the basis for a definition of the term. In that section "gross income" is defined to mean "all income from whatever source derived," including 15 specific examples of income. The implication is that the term "income" must include at least those examples given, one of which is "interest." Therefore, we must conclude that interest received on a mortgage or agreement for deed constitutes income and that, to the extent that money received is a return of capital, that money does not constitute income. Chommie Law of Federal Income Taxation s. 15, p. 28 (1975).

Accordingly, money in excess of $1,000 received on a mortgage or agreement for deed must be disclosed to the extent that it constitutes income for federal income tax purposes, i.e., interest.

Question 2 is also answered in the affirmative, if the amount of profit exceeds $1,000.

The answer to this question also turns on the extent to which the amount received from the mortgage or agreement for deed will be considered income under the Internal Revenue Code. As 26 U.S.C.A. s. 61(a)(3) includes "gains derived from dealings in property" as income, it is our conclusion that only the profit made from a mortgage or agreement for deed acquired for less than face value constitutes income. Accordingly, if only 1/3 of the $1,800 received on a mortgage or agreement for deed constitutes income ($600), then that amount of income need not be disclosed because it is less than $1,000.