An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment.
A structured sale or structured installment sale, is a special type of installment sale pursuant to the Internal Revenue Code.
In an installment sale, the seller defers the recognition of gains on the sale of a business or real estate to the tax year in which the related sale proceeds are received. In a structured installment sale, the seller is able to pay U.S. Federal income tax over time while having the seller's right to receive those payments guaranteed by a high credit quality alternate obligor. This obligor assumes the buyer's periodic payment obligation.
Structured sales work well for sellers who want to create a continuing stream of income without management worries. Retiring business owners and downsizing homeowners are examples of sellers who can benefit.
To fund its future payment obligations, the buyer enters into an agreement with the seller to utilize an assignment company, which then purchases an annuity from a life insurance company.
While negotiating the installment payments, the seller is free to design payment streams with a great deal of flexibility. Each installment payment to the seller has three components: return of basis, capital gain, and ordinary income earned on the money in the annuity.
Under the doctrine of constructive receipt, with a properly documented structured sale, no taxable event is recognized until a payment is actually received. Taxation is the same as if the buyer were making installment payments directly.
Case law and administrative precedents support recognition of the original contract terms after a substitution of obligors.
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Structured Installment SaleS
401 East Las Olas Boulevard, Suite 1400 - Fort Lauderdale, Florida 33301, United States
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