Availability of the installment method is limited or eliminated after tax reform
Article Abstract:
The Tax Reform Act of 1986 restricts and in some cases eliminates the benefits of the installment method, which allows gains to be considered in income as payments are received. The new proportionate disallowance rule is among tax provisions that apply to installment sales, treating certain amounts as constructively received even though no actual payment is made. Phase-in rules benefit even those taxpayers who dispose of property under revolving credit arrangements and who will not be able to use the installment method for taxable years after 1986. Debt repayments should be planned carefully and have valid business reasons behind them in order to prevent unfavorable IRS challenges. Further use of the installment method could be denied by the IRS if it deems that the taxpayer makes intentional debt payments to avoid constructive payments.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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Installment sale payments can be secured without triggering immediate gain
Article Abstract:
The Tax Reform Act of 1986 should increase the usefulness of installment sales. Deferring tax will become even more important with the removal of capital gains. There are two ways in which installment sale payments can be secured without being counted as payments for the year of sale. Installment sales of farm or personal use property are not covered by the new constructive payment rules which accelerate the reporting of gain. Escrow agreements are genuine deferral devices in certain circumstances. Secured payments are also deferral devices if payment is not made during the year of the sale, and if the payment is secured with notes that are not payable on demand and not issued in readily tradable form.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
User Contributions:
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