A Closer Look Into Installment Sales

Author: Jennifer Kowal

Per the IRS Education Provider Standards this course must be COMPLETED by 12/31/2025 to receive credits. NOTE: Go to My Professional Profile in your CCH CPELink account settings to ensure your name, and PTIN number; matches your PTIN card

The installment method of accounting applies automatically to any sale of property for which the seller receives at least one payment for the property in a year beyond the year of sale, unless the taxpayer elects out or unless the property is ineligible for the installment method. This course demonstrates how to calculate and report gain for each year under the installment method, contingent payment installment sales and other installment sales with a variable sales price, the risks of pledging or transferring installment notes, and other installment sale issues.

Publication Date: November 2022

Designed For
Tax practitioners at all levels who provide advice and return preparation on transactions involving installment notes, such as real estate transactions and sale of businesses.

Topics Covered

• The purpose of the installment sale rules, and when they apply
• The mechanics of installment sale rules to calculate amount of gain to be reported in each year
• How the installment sale rules apply to contingent payment sales and transactions involving assumption of liabilities
• Special installment sale rules relating to depreciation recapture, related party installment sales, interest charges on certain installment sale deferrals, and dispositions of installment notes
• How the installment sale rules apply to the sale of a business

Learning Objectives

• Recognize when installment method applies
• Identify how gain is calculated and reported under the installment method
• Describe contingent payment installment sale rules and differentiate when and how they apply
• Identify special rules regarding transfer of installment obligations and interest charges on large installment obligations
• Identify the case in which the Court decided to allow the taxpayer to defer gain until the buyer's obligation was reduced to cash
• Identify the IRC Section that notes that income from an installment sale shall be taken into account under the installment method
• Identify the first step in applying the installment method
• Identify over how many years you should allocate the basis ratably if there is neither a maximum selling price nor a fixed term
• Identify by which order tax rules require allocating the aggregate purchase price among all of the assets of the business

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
Basic familiarity with sale transactions, including how to calculate gain and loss

Advance Preparation
None