$8.7 Million Partnership Income Adjustment by IRS Disallowed: Family Mobile Home Business' Promissory Notes Were Not Includible in Income, the Tax Court Holds

By Pirrone, Maria M. | Journal of Accountancy, March 2020 | Go to article overview

$8.7 Million Partnership Income Adjustment by IRS Disallowed: Family Mobile Home Business' Promissory Notes Were Not Includible in Income, the Tax Court Holds


Pirrone, Maria M., Journal of Accountancy


The Tax Court held that a mobile home business could not use the Sec. 453 installment method for reporting mobile home sales. In addition, the IRS could not change the partnership's accounting method from the cash method to the accrual method to increase reported income.

Facts: In 1985, Gary and Janel Joyner began to purchase large tracts in Arkansas and subdivide the land for resale. They marketed the lots primarily to low-income individuals who placed mobile homes on the lots. In most cases, the Joyners also provided financing and executed promissory notes with the buyers. The Joyners extended the loans generally without regard to buyers' credit history or requiring documentation of their income. Purchase agreements and notes did not state the loans' terms or include an amortization schedule or the number of payments or amount required to fully pay off the loans. The Joyners typically did not collect any down payments.

In 1998, the Joyners organized the Joyner Family Limited Partnership (JFLP).They expanded their business to include the purchase and resale of mobile homes on their lots and then to include mobile home rentals. JFLP used the cash method for tax purposes and reported income from the land sales under the installment method. JFLP did not report income from the receipt of the notes; rather, it reported income as it received payments.

In 2015, the IRS issued a notice of Final Partnership Administrative Adjustment to JFLP for 2010, 2011, and 2012, asserting that JFLP was not entitled to use the Sec. 453 installment method to report the mobile home sales and must report income for the sales upon receipt of the notes, increasing JFLP's gross receipts by $1,759,306; $1,250,278; and $606,412, respectively.

The IRS claimed in an amended answer that JFLP was not entitled to report its land-only sales under the installment method and thereby increased JFLP's 2010 and 2011 gross receipts by a further $1,001,665 and $19,328, respectively, for the land-only sales. In addition, the IRS asserted that JFLP was not entitled to the worthless-debt deductions previously allowed. As a result, the IRS sought an increase in JFLP's taxable income for the years at issue of over $8.7 million.

Issues: Sec. 453 allows taxpayers to delay recognition of gain until they receive payments on installment sales. An installment sale is defined as a "disposition of property where at least 1 payment is to be received after the close of the taxable year in which the disposition occurs." Dealers of real property (other than unimproved residential lots) do not qualify for Sec. 453 reporting. A cash-method taxpayer must report income when it is actually or constructively received. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

$8.7 Million Partnership Income Adjustment by IRS Disallowed: Family Mobile Home Business' Promissory Notes Were Not Includible in Income, the Tax Court Holds
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.