Susan L. Megaard, Nondealer Installment Sales: A Road Map For the General Practitioner, 25 Gonz. L. Rev. 373, 497 (1989)

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Section 453 of the Internal Revenue Code (Code) provides that gain from certain sales of property in exchange for which the seller receives deferred payments is reported on the installment method, unless the seller elects otherwise. The policy for installment reporting is to permit the spreading of tax on gain from a deferred payment sale over the period during which the sales proceeds are received by the seller. Without in- stallment reporting, the bunching of gain in the year of sale, coupled with the need to pay taxes on that gain before payments are actually received, would cause liquidity problems for the seller.

From the government’s perspective, the use of installment reporting has caused problems. First, installment reporting in effect allows sellers an interest-free loan from the government equal to the amount of unpaid taxes due on the sale. Second, many sellers obtain cash immediately with- out paying current taxes by making an installment sale of property and pledging the obligation received for a loan.

These problems, combined with the continuing need to raise revenue through the tax laws, have spurred Congress to enact a series of legisla- tive provisions narrowing the scope of the installment method. The sheer volume and complexity of the changes in the installment sales area in recent years has left many tax practitioners scratching their heads…. Read More

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