Magazine article The CPA Journal

Contingent Sales under the New Installment Sale Regime

Magazine article The CPA Journal

Contingent Sales under the New Installment Sale Regime

Article excerpt

Businesses often enter sales transactions in which the sales price is not determined at the time of sale. In some cases, the sales price is contingent on a future event. For example, a seller may contract for a percentage of the purchaser's net profits for five years. Temporary Treasury Regulations section 15A.453-1(c) defines a sale in which the aggregate selling price cannot be determined by the close of the taxable year as a contingent payment sale. Subsection (1) specifies the use of the installment method of accounting unless the seller elects not to have the installment method apply to the sale. However, for accrual taxpayers with contingent payment sales, the December 17, 1999 repeal of the installment method involves immediate, unfavorable tax consequences.

Repeal of Installment Sales for Accrual Taxpayers

Before December 17, 1999, accrual basis sellers using the installment method could pay the capital gains tax on their sale profits as they received the money from the buyer. …

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