Internal Revenue Code:Sec. 453. Installment method
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter E - Accounting Periods and Methods of Accounting
PART II - METHODS OF ACCOUNTING
Subpart B - Taxable Year for Which Items of Gross Income Included
Statute
Sec. 453. Installment method
(a) General rule
Except as otherwise provided in this section, income from an
installment sale shall be taken into account for purposes of this
title under the installment method.
(b) Installment sale defined
For purposes of this section -
(1) In general
The term ''installment sale'' means 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.
(2) Exceptions
The term ''installment sale'' does not include -
(A) Dealer dispositions
Any dealer disposition (as defined in subsection (l)).
(B) Inventories of personal property
A disposition of personal property of a kind which is
required to be included in the inventory of the taxpayer if on
hand at the close of the taxable year.
(c) Installment method defined
For purposes of this section, the term ''installment method''
means a method under which the income recognized for any taxable
year from a disposition is that proportion of the payments received
in that year which the gross profit (realized or to be realized
when payment is completed) bears to the total contract price.
(d) Election out
(1) In general
Subsection (a) shall not apply to any disposition if the
taxpayer elects to have subsection (a) not apply to such
disposition.
(2) Time and manner for making election
Except as otherwise provided by regulations, an election under
paragraph (1) with respect to a disposition may be made only on
or before the due date prescribed by law (including extensions)
for filing the taxpayer's return of the tax imposed by this
chapter for the taxable year in which the disposition occurs.
Such an election shall be made in the manner prescribed by
regulations.
(3) Election revocable only with consent
An election under paragraph (1) with respect to any disposition
may be revoked only with the consent of the Secretary.
(e) Second dispositions by related persons
(1) In general
If -
(A) any person disposes of property to a related person
(hereinafter in this subsection referred to as the ''first
disposition''), and
(B) before the person making the first disposition receives
all payments with respect to such disposition, the related
person disposes of the property (hereinafter in this subsection
referred to as the ''second disposition''),
then, for purposes of this section, the amount realized with
respect to such second disposition shall be treated as received
at the time of the second disposition by the person making the
first disposition.
(2) 2-Year cutoff for property other than marketable securities
(A) In general
Except in the case of marketable securities, paragraph (1)
shall apply only if the date of the second disposition is not
more than 2 years after the date of the first disposition.
(B) Substantial diminishing of risk of ownership
The running of the 2-year period set forth in subparagraph
(A) shall be suspended with respect to any property for any
period during which the related person's risk of loss with
respect to the property is substantially diminished by -
(i) the holding of a put with respect to such property (or
similar property),
(ii) the holding by another person of a right to acquire
the property, or
(iii) a short sale or any other transaction.
(3) Limitation on amount treated as received
The amount treated for any taxable year as received by the
person making the first disposition by reason of paragraph (1)
shall not exceed the excess of -
(A) the lesser of -
(i) the total amount realized with respect to any second
disposition of the property occurring before the close of the
taxable year, or
(ii) the total contract price for the first disposition,
over
(B) the sum of -
(i) the aggregate amount of payments received with respect
to the first disposition before the close of such year, plus
(ii) the aggregate amount treated as received with respect
to the first disposition for prior taxable years by reason of
this subsection.
(4) Fair market value where disposition is not sale or exchange
For purposes of this subsection, if the second disposition is
not a sale or exchange, an amount equal to the fair market value
of the property disposed of shall be substituted for the amount
realized.
(5) Later payments treated as receipt of tax paid amounts
If paragraph (1) applies for any taxable year, payments
received in subsequent taxable years by the person making the
first disposition shall not be treated as the receipt of payments
with respect to the first disposition to the extent that the
aggregate of such payments does not exceed the amount treated as
received by reason of paragraph (1).
(6) Exception for certain dispositions
For purposes of this subsection -
(A) Reacquisitions of stock by issuing corporation not treated
as first dispositions
Any sale or exchange of stock to the issuing corporation
shall not be treated as a first disposition.
(B) Involuntary conversions not treated as second dispositions
A compulsory or involuntary conversion (within the meaning of
section 1033) and any transfer thereafter shall not be treated
as a second disposition if the first disposition occurred
before the threat or imminence of the conversion.
(C) Dispositions after death
Any transfer after the earlier of -
(i) the death of the person making the first disposition,
or
(ii) the death of the person acquiring the property in the
first disposition,
and any transfer thereafter shall not be treated as a second
disposition.
(7) Exception where tax avoidance not a principal purpose
This subsection shall not apply to a second disposition (and
any transfer thereafter) if it is established to the satisfaction
of the Secretary that neither the first disposition nor the
second disposition had as one of its principal purposes the
avoidance of Federal income tax.
(8) Extension of statute of limitations
The period for assessing a deficiency with respect to a first
disposition (to the extent such deficiency is attributable to the
application of this subsection) shall not expire before the day
which is 2 years after the date on which the person making the
first disposition furnishes (in such manner as the Secretary may
by regulations prescribe) a notice that there was a second
disposition of the property to which this subsection may have
applied. Such deficiency may be assessed notwithstanding the
provisions of any law or rule of law which would otherwise
prevent such assessment.
(f) Definitions and special rules
For purposes of this section -
(1) Related person
Except for purposes of subsections (g) and (h), the term
''related person'' means -
(A) a person whose stock would be attributed under section
318(a) (other than paragraph (4) thereof) to the person first
disposing of the property, or
(B) a person who bears a relationship described in section
267(b) to the person first disposing of the property.
(2) Marketable securities
The term ''marketable securities'' means any security for
which, as of the date of the disposition, there was a market on
an established securities market or otherwise.
(3) Payment
Except as provided in paragraph (4), the term ''payment'' does
not include the receipt of evidences of indebtedness of the
person acquiring the property (whether or not payment of such
indebtedness is guaranteed by another person).
(4) Purchaser evidences of indebtedness payable on demand or
readily tradable
Receipt of a bond or other evidence of indebtedness which -
(A) is payable on demand, or
(B) is readily tradable,
shall be treated as receipt of payment.
(5) Readily tradable defined
For purposes of paragraph (4), the term ''readily tradable''
means a bond or other evidence of indebtedness which is issued -
(A) with interest coupons attached or in registered form
(other than one in registered form which the taxpayer
establishes will not be readily tradable in an established
securities market), or
(B) in any other form designed to render such bond or other
evidence of indebtedness readily tradable in an established
securities market.
(6) Like-kind exchanges
In the case of any exchange described in section 1031(b) -
(A) the total contract price shall be reduced to take into
account the amount of any property permitted to be received in
such exchange without recognition of gain,
(B) the gross profit from such exchange shall be reduced to
take into account any amount not recognized by reason of
section 1031(b), and
(C) the term ''payment'', when used in any provision of this
section other than subsection (b)(1), shall not include any
property permitted to be received in such exchange without
recognition of gain.
Similar rules shall apply in the case of an exchange which is
described in section 356(a) and is not treated as a dividend.
(7) Depreciable property
The term ''depreciable property'' means property of a character
which (in the hands of the transferee) is subject to the
allowance for depreciation provided in section 167.
(8) Payments to be received defined
The term ''payments to be received'' includes -
(A) the aggregate amount of all payments which are not
contingent as to amount, and
(B) the fair market value of any payments which are
contingent as to amount.
(g) Sale of depreciable property to controlled entity
(1) In general
In the case of an installment sale of depreciable property
between related persons -
(A) subsection (a) shall not apply,
(B) for purposes of this title -
(i) except as provided in clause (ii), all payments to be
received shall be treated as received in the year of the
disposition, and
(ii) in the case of any payments which are contingent as to
the amount but with respect to which the fair market value
may not be reasonably ascertained, the basis shall be
recovered ratably, and
(C) the purchaser may not increase the basis of any property
acquired in such sale by any amount before the time such amount
is includible in the gross income of the seller.
(2) Exception where tax avoidance not a principal purpose
Paragraph (1) shall not apply if it is established to the
satisfaction of the Secretary that the disposition did not have
as one of its principal purposes the avoidance of Federal income
tax.
(3) Related persons
For purposes of this subsection, the term ''related persons''
has the meaning given to such term by section 1239(b), except
that such term shall include 2 or more partnerships having a
relationship to each other described in section 707(b)(1)(B).
(h) Use of installment method by shareholders in certain
liquidations
(1) Receipt of obligations not treated as receipt of payment
(A) In general
If, in a liquidation to which section 331 applies, the
shareholder receives (in exchange for the shareholder's stock)
an installment obligation acquired in respect of a sale or
exchange by the corporation during the 12-month period
beginning on the date a plan of complete liquidation is adopted
and the liquidation is completed during such 12-month period,
then, for purposes of this section, the receipt of payments
under such obligation (but not the receipt of such obligation)
by the shareholder shall be treated as the receipt of payment
for the stock.
(B) Obligations attributable to sale of inventory must result
from bulk sale
Subparagraph (A) shall not apply to an installment obligation
acquired in respect of a sale or exchange of -
(i) stock in trade of the corporation,
(ii) other property of a kind which would properly be
included in the inventory of the corporation if on hand at
the close of the taxable year, and
(iii) property held by the corporation primarily for sale
to customers in the ordinary course of its trade or business,
unless such sale or exchange is to 1 person in 1 transaction
and involves substantially all of such property attributable to
a trade or business of the corporation.
(C) Special rule where obligor and shareholder are related
persons
If the obligor of any installment obligation and the
shareholder are married to each other or are related persons
(within the meaning of section 1239(b)), to the extent such
installment obligation is attributable to the disposition by
the corporation of depreciable property -
(i) subparagraph (A) shall not apply to such obligation,
and
(ii) for purposes of this title, all payments to be
received by the shareholder shall be deemed received in the
year the shareholder receives the obligation.
(D) Coordination with subsection (e)(1)(A)
For purposes of subsection (e)(1)(A), disposition of property
by the corporation shall be treated also as disposition of such
property by the shareholder.
(E) Sales by liquidating subsidiaries
For purposes of subparagraph (A), in the case of a
controlling corporate shareholder (within the meaning of
section 368(c)) of a selling corporation, an obligation
acquired in respect of a sale or exchange by the selling
corporation shall be treated as so acquired by such controlling
corporate shareholder. The preceding sentence shall be applied
successively to each controlling corporate shareholder above
such controlling corporate shareholder.
(2) Distributions received in more than 1 taxable year of
shareholder
If -
(A) paragraph (1) applies with respect to any installment
obligation received by a shareholder from a corporation, and
(B) by reason of the liquidation such shareholder receives
property in more than 1 taxable year,
then, on completion of the liquidation, basis previously
allocated to property so received shall be reallocated for all
such taxable years so that the shareholder's basis in the stock
of the corporation is properly allocated among all property
received by such shareholder in such liquidation.
(i) Recognition of recapture income in year of disposition
(1) In general
In the case of any installment sale of property to which
subsection (a) applies -
(A) notwithstanding subsection (a), any recapture income
shall be recognized in the year of the disposition, and
(B) any gain in excess of the recapture income shall be taken
into account under the installment method.
(2) Recapture income
For purposes of paragraph (1), the term ''recapture income''
means, with respect to any installment sale, the aggregate amount
which would be treated as ordinary income under (or so much of
section 751 as relates to section 1245 or 1250) for the taxable
year of the disposition if all payments to be received were
received in the taxable year of disposition.
(j) Regulations
(1) In general
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the provisions of this
section.
(2) Selling price not readily ascertainable
The regulations prescribed under paragraph (1) shall include
regulations providing for ratable basis recovery in transactions
where the gross profit or the total contract price (or both)
cannot be readily ascertained.
(k) Current inclusion in case of revolving credit plans, etc.
In the case of -
(1) any disposition of personal property under a revolving
credit plan, or
(2) any installment obligation arising out of a sale of -
(A) stock or securities which are traded on an established
securities market, or
(B) to the extent provided in regulations, property (other
than stock or securities) of a kind regularly traded on an
established market,
subsection (a) shall not apply, and, for purposes of this title,
all payments to be received shall be treated as received in the
year of disposition. The Secretary may provide for the application
of this subsection in whole or in part for transactions in which
the rules of this subsection otherwise would be avoided through the
use of related parties, pass-thru entities, or intermediaries.
(l) Dealer dispositions
For purposes of subsection (b)(2)(A) -
(1) In general
The term ''dealer disposition'' means any of the following
dispositions:
(A) Personal property
Any disposition of personal property by a person who
regularly sells or otherwise disposes of personal property of
the same type on the installment plan.
(B) Real property
Any disposition of real property which is held by the
taxpayer for sale to customers in the ordinary course of the
taxpayer's trade or business.
(2) Exceptions
The term ''dealer disposition'' does not include -
(A) Farm property
The disposition on the installment plan of any property used
or produced in the trade or business of farming (within the
meaning of section 2032A(e)(4) or (5)).
(B) Timeshares and residential lots
(i) In general
Any dispositions described in clause (ii) on the
installment plan if the taxpayer elects to have paragraph (3)
apply to any installment obligations which arise from such
dispositions. An election under this paragraph shall not
apply with respect to an installment obligation which is
guaranteed by any person other than an individual.
(ii) Dispositions to which subparagraph applies
A disposition is described in this clause if it is a
disposition in the ordinary course of the taxpayer's trade or
business to an individual of -
(I) a timeshare right to use or a timeshare ownership
interest in residential real property for not more than 6
weeks per year, or a right to use specified campgrounds for
recreational purposes, or
(II) any residential lot, but only if the taxpayer (or
any related person) is not to make any improvements with
respect to such lot.
For purposes of subclause (I), a timeshare right to use (or
timeshare ownership interest in) property held by the spouse,
children, grandchildren, or parents of an individual shall be
treated as held by such individual.
(C) Carrying charges or interest
Any carrying charges or interest with respect to a
disposition described in subparagraph (A) or (B) which are
added on the books of account of the seller to the established
cash selling price of the property shall be included in the
total contract price of the property and, if such charges or
interest are not so included, any payments received shall be
treated as applying first against such carrying charges or
interest.
(3) Payment of interest on timeshares and residential lots
(A) In general
In the case of any installment obligation to which paragraph
(2)(B) applies, the tax imposed by this chapter for any taxable
year for which payment is received on such obligation shall be
increased by the amount of interest determined in the manner
provided under subparagraph (B).
(B) Computation of interest
(i) In general
The amount of interest referred to in subparagraph (A) for
any taxable year shall be determined -
(I) on the amount of the tax for such taxable year which
is attributable to the payments received during such
taxable year on installment obligations to which this
subsection applies,
(II) for the period beginning on the date of sale, and
ending on the date such payment is received, and
(III) by using the applicable Federal rate under section
1274 (without regard to subsection (d)(2) thereof) in
effect at the time of the sale compounded semiannually.
(ii) Interest not taken into account
For purposes of clause (i), the portion of any tax
attributable to the receipt of any payment shall be
determined without regard to any interest imposed under
subparagraph (A).
(iii) Taxable year of sale
No interest shall be determined for any payment received in
the taxable year of the disposition from which the
installment obligation arises.
(C) Treatment as interest
Any amount payable under this paragraph shall be taken into
account in computing the amount of any deduction allowable to
the taxpayer for interest paid or accrued during such taxable
year.
Sources
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2247;
amended Pub. L. 97-34, title II, Sec. 202(c), Aug. 13, 1981, 95
Stat. 221; Pub. L. 97-448, title III, Sec. 303, Jan. 12, 1983, 96
Stat. 2398; Pub. L. 98-369, div. A, title I, Sec. 112(a), title
IV, Sec. 421(b)(6)(B), (C), July 18, 1984, 98 Stat. 635, 794; Pub.
L. 99-514, title VI, Sec. 631(e)(8), 642(a)(1)(D), (3), (b), title
VIII, Sec. 812(a), title XVIII, Sec. 1809(c), Oct. 22, 1986, 100
Stat. 2274, 2284, 2371, 2821; Pub. L. 100-203, title X, Sec.
10202(b), Dec. 22, 1987, 101 Stat. 1330-388; Pub. L. 100-647, title
I, Sec. 1006(e)(7), (i)(1), (2), 1008(g)(1), 1018(u)(25), (26),
title II, Sec. 2004(d)(1), (5), Nov. 10, 1988, 102 Stat. 3401,
3410, 3442, 3591, 3599; Pub. L. 106-170, title V, Sec. 536(a), Dec.
17, 1999, 113 Stat. 1936; Pub. L. 106-573, Sec. 2(a), Dec. 28,
2000, 114 Stat. 3061.)
Miscellaneous
PRIOR PROVISIONS
A prior section 453, acts Aug. 16, 1954, ch. 736, 68A Stat. 154;
Sept. 2, 1958, Pub. L. 85-866, title I, Sec. 27(a), 72 Stat. 1624;
Oct. 16, 1962, Pub. L. 87-834, Sec. 13(f)(5), 76 Stat. 1035; Feb.
26, 1964, Pub. L. 88-272, title II, Sec. 222(a), 231(b)(5), 78
Stat. 75, 105; Aug. 22, 1964, Pub. L. 88-484, Sec. 1(b)(2), 78
Stat. 597; Aug. 31, 1964, Pub. L. 88-539, Sec. 3(a), (b), 78 Stat.
746; Sept. 12, 1966, Pub. L. 89-570, Sec. 1(b)(5), 80 Stat. 762;
Nov. 13, 1966, Pub. L. 89-809, title II, Sec. 202(c), 80 Stat.
1576; Dec. 30, 1969, Pub. L. 91-172, title II, Sec. 211(b)(5),
title III, Sec. 301(b)(7), title IV, Sec. 412(a), title IX, Sec.
916(a), 83 Stat. 570, 585, 608, 723; Oct. 4, 1976, Pub. L. 94-455,
title II, Sec. 205(c)(1)(E), title XIX, Sec. 1901(a)(66),
1906(b)(13)(A), 1951(b)(7)(A), 90 Stat. 1535, 1775, 1834, 1838;
Nov. 6, 1978, Pub. L. 95-600, title VII, Sec. 703(j)(3), 92 Stat.
2941; Apr. 1, 1980, Pub. L. 96-222, title I, Sec. 104(a)(4)(H)(iv),
94 Stat. 217; Apr. 2, 1980, Pub. L. 96-223, title IV, Sec.
403(b)(2)(B), 94 Stat. 305; Oct. 19, 1980, Pub. L. 96-471, Sec.
2(c)(4), 94 Stat. 2254, related to installment method in general,
installment method for dealers in personal property, and gain or
loss dispositions of installment obligations, prior to repeal by
Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2247. See
sections 453A and 453B of this title.
AMENDMENTS
2004 - Subsec.897(a) ,Pub.L.108-357, amended Sec.453(f)(4)(B)
by striking "is issued by a corporation or a government or
political subdivision thereof and".
2000 - Subsecs. (a), (d)(1), (i)(1), (k). Pub. L. 106-573
repealed Pub. L. 106-170, Sec. 536(a). See 1999 Amendment notes
below.
1999 - Subsec. (a). Pub. L. 106-170, Sec. 536(a)(1), which
substituted ''Use of installment method'' for ''General rule'' in
subsec. heading, designated existing provisions as par. (1) and
inserted heading, and added heading and text of par. (2), text of
which read as follows: ''(2) Accrual method taxpayer. - The
installment method shall not apply to income from an installment
sale if such income would be reported under an accrual method of
accounting without regard to this section. The preceding sentence
shall not apply to a disposition described in subparagraph (A) or
(B) of subsection (l)(2).'', was repealed by Pub. L. 106-573, Sec.
2(a). See Effective Date and Construction of 2000 Amendment note
below.
Subsecs. (d)(1), (i)(1), (k). Pub. L. 106-170, Sec. 536(a)(2),
which substituted ''(a)(1)'' for ''(a)'' wherever appearing, was
repealed by Pub. L. 106-573. See Effective Date and Construction of
2000 Amendment note below.
1988 - Subsec. (f)(1). Pub. L. 100-647, Sec. 1018(u)(25),
substituted ''subsections (g)'' for ''subsection (g)''.
Subsec. (f)(8). Pub. L. 100-647, Sec. 1018(u)(26), substituted
''payments to be'' for ''payment to be''.
Subsec. (g)(1). Pub. L. 100-647, Sec. 1006(i)(2)(B), struck out
''(within the meaning of section 1239(b))'' after ''between related
persons''.
Pub. L. 100-647, Sec. 1006(i)(1), added subpars. (A) to (C) and
struck out former subpars. (A) and (B) which read as follows:
''(A) subsection (a) shall not apply, and
''(B) for purposes of this title -
''(i) except as provided in clause (ii), all payments to be
received shall be treated as received in the year of the
disposition, and
''(ii) in the case of any payments which are contingent as to
amount but with respect to which the fair market value may not be
reasonably ascertained -
''(I) the basis shall be recovered ratably, and
''(II) the purchaser may not increase the basis of any
property acquired in such sale by any amount before such time
as the seller includes such amount in income.''
Subsec. (g)(3). Pub. L. 100-647, Sec. 1006(i)(2)(A), added par.
(3).
Subsec. (h)(1)(B). Pub. L. 100-647, Sec. 1006(e)(7)(A),
substituted ''to 1 person in 1 transaction'' for ''to one person''
in concluding provisions.
Subsec. (h)(1)(E). Pub. L. 100-647, Sec. 1006(e)(7)(B),
substituted ''section 368(c)'' for ''section 368(c)(1)''.
Subsec. (j). Pub. L. 100-647, Sec. 1008(g)(1), redesignated
subsec. (j), relating to current inclusion in case of revolving
credit plans, etc., as (k).
Subsec. (k). Pub. L. 100-647, Sec. 2004(d)(5), struck out ''and
section 453A'' after ''subsection (a)'' in second sentence.
Pub. L. 100-647, Sec. 1008(g)(1), redesignated subsec. (j),
relating to current inclusion in case of revolving credit plans,
etc., as (k).
Subsec. (l)(1)(A). Pub. L. 100-647, Sec. 2004(d)(1), inserted
''of the same type'' after ''disposes of personal property''.
1987 - Subsec. (b)(2)(A). Pub. L. 100-203, Sec. 10202(b)(1),
substituted ''Dealer dispositions'' for ''Dealer disposition of
personal property'' in heading and amended text generally. Prior
to amendment, text read as follows: ''A disposition of personal
property on the installment plan by a person who regularly sells or
otherwise disposes of personal property on the installment plan.''
Subsec. (l). Pub. L. 100-203, Sec. 10202(b)(2), added subsec.
(l).
1986 - Subsec. (f)(1). Pub. L. 99-514, Sec. 642(a)(3), amended
par. (1) generally. Prior to amendment, par. (1) read as follows:
''Except for purposes of subsections (g) and (h), the term 'related
person' means a person whose stock would be attributed under
section 318(a) (other than paragraph (4) thereof) to the person
first disposing of the property.''
Subsec. (f)(8). Pub. L. 99-514, Sec. 642(b)(1), added par. (8).
Subsec. (g). Pub. L. 99-514, Sec. 642(a)(1)(D), substituted
''controlled entity'' for ''80-percent owned entity'' in heading.
Subsec. (g)(1). Pub. L. 99-514, Sec. 642(b)(2), amended par. (1)
generally. Prior to amendment, par. (1) read as follows: ''In the
case of an installment sale of depreciable property between related
persons within the meaning of section 1239(b), subsection (a) shall
not apply, and, for purposes of this title, all payments to be
received shall be deemed received in the year of the disposition.''
Subsec. (h). Pub. L. 99-514, Sec. 631(e)(8)(C), substituted
''certain liquidations'' for ''section 337 liquidations'' in
heading.
Subsec. (h)(1)(A). Pub. L. 99-514, Sec. 631(e)(8)(A), amended
subpar. (A) generally. Prior to amendment, subpar. (A) read as
follows: ''If, in connection with a liquidation to which section
337 applies, in a transaction to which section 331 applies the
shareholder receives (in exchange for the shareholder's stock) an
installment obligation acquired in respect of a sale or exchange by
the corporation during the 12-month period set forth in section
337(a), then, for purposes of this section, the receipt of payments
under such obligation (but not the receipt of such obligation) by
the shareholder shall be treated as the receipt of payment for the
stock.''
Subsec. (h)(1)(B). Pub. L. 99-514, Sec. 631(e)(8)(A), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: ''Subparagraph (A) shall not apply to an installment
obligation described in section 337(b)(1)(B) unless such obligation
is also described in section 337(b)(2)(B).''
Subsec. (h)(1)(E). Pub. L. 99-514, Sec. 631(e)(8)(B), substituted
''subsidiaries'' for ''subsidiary'' in heading and amended text
generally. Prior to amendment, subpar. (E) read as follows: ''For
purposes of subparagraph (A), in any case to which section
337(c)(3) applies, an obligation acquired in respect of a sale or
exchange by the selling corporation shall be treated as so acquired
by the corporation distributing the obligation to the
shareholder.''
Subsec. (i)(2). Pub. L. 99-514, Sec. 1809(c), substituted ''(or
so much of section 751 as relates to section 1245 or 1250)'' for
''section 1245 or 1250''.
Subsec. (j). Pub. L. 99-514, Sec. 812(a), added subsec. (j)
relating to current inclusion in case of revolving credit plans,
etc.
1984 - Subsec. (g). Pub. L. 98-369, Sec. 421(b)(6)(C), struck out
''spouse or'' after ''property to'' in heading.
Subsec. (h)(1)(C). Pub. L. 98-369, Sec. 421(b)(6)(B), inserted
''married to each other or are''.
Subsec. (i). Pub. L. 98-369, Sec. 112(a), amended subsec. (i)
generally, substituting provisions relating to recognition of
recapture income in year of disposition for provisions relating to
application of subsec. (a) in the case of an installment sale of
section 179 property.
1983 - Subsec. (f)(6)(C). Pub. L. 97-448 inserted '', when used
in any provision of this section other than subsection (b)(1),''
after ''the term 'payment' ''.
1981 - Subsecs. (i), (j). Pub. L. 97-34 added subsec. (i) and
redesignated former subsec. (i) as (j).
EFFECTIVE DATE OF 2004 AMENDMENT
Amendment by Pub.L.108-357,Sec.897(a), shall apply to sales
occurring on or after the date of the enactment of this Act.
EFFECTIVE DATE AND CONSTRUCTION OF 2000 AMENDMENT
Pub. L. 106-573, Sec. 2, Dec. 28, 2000, 114 Stat. 3061, provided
that:
''(a) In General. - Subsection (a) of section 536 of the Ticket
to Work and Work Incentives Improvement Act of 1999 (relating to
modification of installment method and repeal of installment method
for accrual method taxpayers) (Pub. L. 106-170, amending this
section) is repealed effective with respect to sales and other
dispositions occurring on or after the date of the enactment of
such Act (Dec. 17, 1999).
''(b) Applicability. - The Internal Revenue Code of 1986 shall be
applied and administered as if that subsection (and the amendments
made by that subsection) had not been enacted.''
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 536(c), Dec. 17, 1999, 113 Stat.
1936, provided that: ''The amendments made by this section
(amending this section and section 453A of this title) shall apply
to sales or other dispositions occurring on or after the date of
the enactment of this Act (Dec. 17, 1999).''
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by sections 1006(e)(7), (i)(1), (2), 1008(g)(1), and
1018(u)(25), (26) of Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
Amendment by section 2004(d)(1), (5) of Pub. L. 100-647
effective, except as otherwise provided, as if included in the
provisions of the Revenue Act of 1987, Pub. L. 100-203, title X, to
which such amendment relates, see section 2004(u) of Pub. L.
100-647, set out as a note under section 56 of this title.
EFFECTIVE DATE OF 1987 AMENDMENT
Section 10202(e) of Pub. L. 100-203, as amended by Pub. L.
100-647, title II, Sec. 2004(d)(3), (4), (6), Nov. 10, 1988, 102
Stat. 3599, 3600, provided that:
''(1) In general. - Except as provided in this subsection, the
amendments made by this section (amending this section and sections
56, 381, 453A, and 691 of this title and repealing section 453C of
this title) shall apply to dispositions in taxable years beginning
after December 31, 1987.
''(2) Special rules for dealers. -
''(A) In general. - In the case of dealer dispositions (within
the meaning of section 453(l)(1) of the Internal Revenue Code of
1986 as added by this section), the amendments made by
subsections (a) and (b) (amending this section and repealing
section 453C of this title) shall apply to installment
obligations arising from dispositions after December 31, 1987.
''(B) Special rules for obligations arising from dealer
dispositions after february 28, 1986, and before january 1, 1988.
-
''(i) In general. - In the case of an applicable installment
obligation arising from a disposition described in subclause
(I) or (II) of section 453C(e)(1)(A)(i) of the Internal Revenue
Code of 1986 (as in effect before the amendments made by this
section) before January 1, 1988, the amendments made by
subsections (a) and (b) shall apply to taxable years beginning
after December 31, 1987.
''(ii) Change in method of accounting. - In the case of any
taxpayer who is required by clause (i) to change its method of
accounting for any taxable year with respect to obligations
described in clause (i) -
''(I) such change shall be treated as initiated by the
taxpayer,
''(II) such change shall be treated as made with the
consent of the Secretary of the Treasury or his delegate, and
''(III) the net amount of adjustments required by section
481 of the Internal Revenue Code of 1986 shall be taken into
account over a period not longer than 4 taxable years.
''(C) Certain rules made applicable. - For purposes of this
paragraph, rules similar to the rules of paragraphs (4) and (5)
of section 812(c) of the Tax Reform Act of 1986 (Pub. L. 99-514,
set out as an Effective Date of 1986 Amendment note below) (as
added by the Technical and Miscellaneous Revenue Act of 1988
(Pub. L. 100-647)) shall apply.
''(3) Special rule for nondealers. -
''(A) Election. - A taxpayer may elect, at such time and in
such manner as the Secretary of the Treasury or his delegate may
prescribe, to have the amendments made by subsections (a) and (c)
(amending sections 381, 453A, and 691 of this title and repealing
section 453C of this title) apply to taxable years ending after
December 31, 1986, with respect to dispositions and pledges
occurring after August 16, 1986.
''(B) Pledging rules. - Except as provided in subparagraph (A)
-
''(i) In general. - Section 453A(d) of the Internal Revenue
Code of 1986 shall apply to any installment obligation which is
pledged to secure any secured indebtedness (within the meaning
of section 453A(d)(4) of such Code) after December 17, 1987, in
taxable years ending after such date.
''(ii) Coordination with section 453c. - For purposes of
section 453C of such Code (as in effect before its repeal), the
face amount of any obligation to which section 453A(d) of such
Code applies shall be reduced by the amount treated as payments
on such obligation under section 453A(d) of such Code and the
amount of any indebtedness secured by it shall not be taken
into account.
''(C) Certain dispositions deemed made on 1st day of taxable
year. - If the taxpayer makes an election under subparagraph (A),
in the case of the taxpayer's 1st taxable year ending after
December 31, 1986 -
''(i) dispositions after August 16, 1986, and before the 1st
day of such taxable year shall be treated as made on such 1st
day, and
''(ii) subsections (b)(2)(B) and (c)(4) of section 453A of
such Code shall be applied separately with respect to such
dispositions by substituting for '$5,000,000' the amount which
bears the same ratio to $5,000,000 as the number of days after
August 16, 1986, and before such 1st day bears to 365.
''(4) Minimum tax. - The amendment made by subsection (d)
(amending section 56 of this title) shall apply to dispositions in
taxable years beginning after December 31, 1986.
''(5) Coordination with tax reform act of 1986. - The amendments
made by this section shall not apply to any installment obligation
or to any taxpayer during any period to the extent the amendments
made by section 811 of the Tax Reform Act of 1986 (section 811 of
Pub. L. 99-514, amending former section 453C of this title and
enacting provisions set out as a note under former section 453C of
this title) do not apply to such obligation or during such
period.''
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 631(e)(8) of Pub. L. 99-514 applicable to
any distribution in complete liquidation, and any sale or exchange,
made by a corporation after July 31, 1986, unless such corporation
is completely liquidated before Jan. 1, 1987, any transaction
described in section 338 of this title for which the acquisition
date occurs after Dec. 31, 1986, and any distribution, not in
complete liquidation, made after Dec. 31, 1986, with exceptions and
special and transitional rules, see section 633 of Pub. L. 99-514,
set out as an Effective Date note under section 336 of this title.
Amendment by section 642(a)(1)(D), (3), (b) of Pub. L. 99-514
applicable to sales after Oct. 22, 1986, in taxable years ending
after such date, but not applicable to sales made after Aug. 14,
1986, which are made pursuant to a binding contract in effect on
Aug. 14, 1986, and at all times thereafter, see section 642(c) of
Pub. L. 99-514, set out as a note under section 1239 of this title.
Section 812(c) of Pub. L. 99-514, as amended by Pub. L. 100-647,
title I, Sec. 1008(g)(3)-(6), Nov. 10, 1988, 102 Stat. 3443,
provided that:
''(1) In general. - Except as provided in paragraphs (2) and (3),
the amendment made by subsection (a) (amending this section) shall
apply to taxable years beginning after December 31, 1986.
''(2) Sales of stock, etc. - Section 453(k)(2) of the Internal
Revenue Code of 1986, as added by subsection (a), shall apply to
sales after December 31, 1986, in taxable years ending after such
date.
''(3) Change in method of accounting. - In the case of any
taxpayer who made sales under a revolving credit plan and was on
the installment method under section 453 or 453A of the Internal
Revenue Code of 1986 for such taxpayer's last taxable year
beginning before January 1, 1987, the amendments made by this
section (amending this section and section 453A of this title)
shall be treated as a change in method of accounting for its 1st
taxable year beginning after December 31, 1986, and -
''(A) such change shall be treated as initiated by the
taxpayer,
''(B) such change shall be treated as having been made with the
consent of the Secretary,
''(C) the period for taking into account adjustments under
section 481 of such Code by reason of such change shall be equal
to 4 years, and
''(D) except as provided in paragraph (4), the amount taken
into account in each of such 4 years shall be the applicable
percentage (determined in accordance with the following table) of
the net adjustment:
The applicable
''In the case of the: percentage is:
1st taxable year 15
2nd taxable year 25
3rd taxable year 30
4th taxable year 30.
If the taxpayer's last taxable year beginning before January 1,
1987, was the taxpayer's 1st taxable year in which sales were made
under a revolving credit plan, all adjustments under section 481 of
such Code shall be taken into account in the taxpayer's 1st taxable
year beginning after December 31, 1986.
''(4) Acceleration of adjustments where contraction in amount of
installment obligations. -
''(A) In general. - If the percentage determined under
subparagraph (B) for any taxable year in the adjustment period
exceeds the percentage which would otherwise apply under
paragraph (3)(D) for such taxable year (determined after the
application of this paragraph for prior taxable years in the
adjustment period) -
''(i) the percentage determined under subparagraph (B) shall
be substituted for the applicable percentage which would
otherwise apply under paragraph (3)(D), and
''(ii) any increase in the applicable percentage by reason of
clause (i) shall be applied to reduce the applicable percentage
determined under paragraph (3)(D) for subsequent taxable years
in the adjustment period (beginning with the 1st of such
subsequent taxable years).
''(B) Determination of percentage. - For purposes of
subparagraph (A), the percentage determined under this
subparagraph for any taxable year in the adjustment period is the
excess (if any) of -
''(i) the percentage determined by dividing the aggregate
contraction in revolving installment obligations by the
aggregate face amount of such obligations outstanding as of the
close of the taxpayer's last taxable year beginning before
January 1, 1987, over
''(ii) the sum of the applicable percentages under paragraph
(3)(D) (as modified by this paragraph) for prior taxable years
in the adjustment period.
''(C) Aggregate contraction in revolving installment
obligations. - For purposes of subparagraph (B), the aggregate
contraction in revolving installment obligations is the amount by
which -
''(i) the aggregate face amount of the revolving installment
obligations outstanding as of the close of the taxpayer's last
taxable year beginning before January 1, 1987, exceeds
''(ii) the aggregate face amount of the revolving installment
obligations outstanding as of the close of the taxable year
involved.
''(D) Revolving installment obligations. - For purposes of this
paragraph, the term 'revolving installment obligations' means
installment obligations arising under a revolving credit plan.
''(E) Treatment of certain obligations disposed of on or before
october 26, 1987. - For purposes of subparagraphs (B)(i) and
(C)(i), in determining the aggregate face amount of revolving
installment obligations outstanding as of the close of the
taxpayer's last taxable year beginning before January 1, 1987,
there shall not be taken into account any obligation -
''(i) which was disposed of to an unrelated person on or
before October 26, 1987, or
''(ii) was disposed of to an unrelated person on or after
such date pursuant to a binding written contract in effect on
October 26, 1987, and at all times thereafter before such
disposition.
For purposes of the preceding sentence, the term 'unrelated
person' means any person who is not a related person (as defined
in section 453(g) of the Internal Revenue Code of 1986).
''(5) Limitation on losses from sales of obligations under
revolving credit plans. - If 1 or more obligations arising under a
revolving credit plan and taken into account under paragraph (3)
are disposed of during the adjustment period, then, notwithstanding
any other provision of law -
''(A) no losses from such dispositions shall be recognized, and
''(B) the aggregate amount of the adjustment for taxable years
in the adjustment period (in reverse order of time) shall be
reduced by the amount of such losses.
''(6) Adjustment period. - For purposes of paragraphs (4) and
(5), the adjustment period is the 4-year period under paragraph
(3).''
Amendment by section 1809(c) of Pub. L. 99-514 effective, except
as otherwise provided, as if included in the provisions of the Tax
Reform Act of 1984, Pub. L. 98-369, div. A, to which such
amendment relates, see section 1881 of Pub. L. 99-514, set out as a
note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 112(b) of Pub. L. 98-369 provided that:
''(1) In general. - Except as otherwise provided in this
subsection, the amendments made by this section (amending this
section) shall apply with respect to dispositions made after June
6, 1984.
''(2) Exception. - The amendments made by this section shall not
apply with respect to any disposition conducted pursuant to a
contract which was binding on March 22, 1984, and at all times
thereafter.
''(3) Special rule for certain dispositions before october 1,
1984. - The amendments made by this section shall not apply to any
disposition before October 1, 1984, of all or substantially all of
the personal property of a cable television business pursuant to a
written offer delivered by the seller on June 20, 1984, but only if
the last payment under the installment contract is due no later
than October 1, 1989.''
Amendment by section 421(b)(6)(B), (C) of Pub. L. 98-369
applicable to transfers after July 18, 1984, in taxable years
ending after such date, subject to election to have amendment apply
to transfers after 1983 or to transfers pursuant to existing
decrees, see section 421(d) of Pub. L. 98-369, set out as an
Effective Date note under section 1041 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Section 311(a) of Pub. L. 97-448 provided that: ''The amendments
made by sections 301, 302, and 303 (amending this section and
sections 453B and 1239 of this title) shall apply to dispositions
made after October 19, 1980, in taxable years ending after such
date.''
EFFECTIVE DATE OF 1981 AMENDMENT
Amendment by Pub. L. 97-34 applicable to property placed in
service after Dec. 31, 1980, in taxable years ending after that
date, see section 209(a) of Pub. L. 97-34, set out as an Effective
Date note under section 168 of this title.
EFFECTIVE DATE; APPLICATION OF FORMER SECTION 453(B) TO CERTAIN
DISPOSITIONS
Section 6(a) of Pub. L. 96-471, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided:
''(1) In general. - Except as otherwise provided in this
subsection, the amendments made by sections 2 (enacting this
section and sections 453A and 453B of this title and amending
sections 311, 336, 337, 381, former section 453, and sections 453B,
481, 644, 691, and 1255 of this title) and 5 (amending section 1239
of this title) shall apply to dispositions made after the date of
the enactment of this Act (Oct. 19, 1980) in taxable years ending
after such date.
''(2) For section 453(e). - Section 453(e) of the Internal
Revenue Code of 1986 (formerly I.R.C. 1954) (as amended by section
2) shall apply to first dispositions made after May 14, 1980.
''(3) For section 453(h). - Paragraphs (1) and (2) of section
453(h) of such Code (as amended by section 2) shall apply in the
case of distributions of installment obligations after March 31,
1980.
''(4) For section 453a. - Section 453A of the Internal Revenue
Code of 1986 (as amended by section 2) shall apply to taxable years
ending after the date of enactment of this Act (Oct. 19, 1980).
''(5) For section 453b(f). - Section 453B(f) of the Internal
Revenue Code of 1986 (as amended by section 2) shall apply to
installment obligations becoming unenforceable after the date of
the enactment of this Act (Oct. 19, 1980).
''(6) For section 2(c). - The amendments made by section 2(c)
(amending sections 336, 337, 453B, and former section 453 of this
title) shall take effect as if included in the amendments made by
section 403(b) of the Crude Oil Windfall Profit Tax Act of 1980
(see section 403(b)(3) of Pub. L. 96-223, set out as an Effective
Date of 1980 Amendments note under section 337 of this title).
''(7) Special rule for application of former section 453 to
certain dispositions. - In the case of any disposition made on or
before the date of the enactment of this Act (Oct. 19, 1980) in any
taxable year ending after such date, the provisions of section
453(b) of the Internal Revenue Code of 1986 (see subsec. (b) of
former section 453 of this title, set out below) as in effect
before such date, shall be applied with respect to such disposition
without regard to -
''(A) paragraph (2) of such section 453(b), and
''(B) any requirement that more than 1 payment be received.''
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle
A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title
XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to
any plan, such plan amendment shall not be required to be made
before the first plan year beginning on or after Jan. 1, 1989, see
section 1140 of Pub. L. 99-514, as amended, set out as a note under
section 401 of this title.
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 26, 163, 381, 453A, 453B,
469, 691, 774, 1259, 3406 of this title.
