¹Sec. 453(a)(2) was repealed by the Ticket to Work and Work Incentives Improvement Act of 1999, Section 536(a)(1) and reinstated by Section 2(a) of the Installment Tax Correction Act of 2000; see Bruce, Tax Clinic, "Congress Reinstates Installment Method for Accrual-Basis Taxpayers," 32 The Tax Adviser 151 (March 2001).

²Sec. 453(d) states that a taxpayer may elect out of the installment method for any disposition on a timely filed return (including extensions) for the year of disposition. Sec. 453(d)(3) provides that, once made, the election can be revoked only with IRS consent. The installment method cannot be used to report a loss, which is generally recognized and reported in the sale year.

³"Selling price" is the gross selling price, without a reduction for mortgages, other encumbrances or selling expenses; see Temp. Regs. Sec. 15A.453-1(b)(2)(ii) and (v).

⁴For sales of real property by persons other than dealers and for casual sales of personal property, commissions and other selling expenses are added to basis under Temp. Regs. Sec. 15A.453-1(b)(2)(iii) and (iv) in determining gross profit attributable to the disposition.

⁵General Utilities & Operating Co., 296 US 200 (1935), repealed by Tax Reform Act of 1986 Sections 631–633.

⁶As opposed to a stock sale, a sale of a C corporation's assets may be beneficial when the buyer (1) is unwilling to acquire the entity due to contingent liabilities, (2) seeks a cost basis in the assets or (3) does not want to continue to operate the business in the corporate form. An asset sale might also be advantageous if the corporation has high asset bases or net operating losses to offset against asset-sale gains.

⁷In the C corporation context, Sec. 453(h) does not defer or negate the corporation's gain on the sale of its assets; it merely allows shareholders to defer tax on the liquidating distribution. S corporation treatment is discussed in Part II of this article.

⁸The fact that the shareholder is treated as receiving the installment note for stock bars use of Sec. 453(h) by shareholders of publicly traded corporations; see Sec. 453(k)(2).

⁹A corporation cannot report a bulk sale of inventory on the installment method.

¹⁰A shareholder's sale, disposition or other transfer of the installment note results in the recognition of any remaining gain on it, calculated as the amount realized on the disposition (generally, the note's FMV), less the note's basis on disposition. The gain is deemed as resulting from the original stock liquidation, under Sec. 453B(a).

¹¹Regs. Sec. 1.453-11(a)(4) and (5), Example 2. These liabilities do not reduce the amounts received in computing the selling price.

¹²A shareholder must take into account distributions and other relevant events or information that he knows (or reasonably could know) up to the date he files his Federal income tax return; see Regs. Sec. 1.453-11(d).

¹³Sec. 453(h)(2) provides that a shareholder who receives liquidating distributions in more than one tax year must, on the liquidation's end, reallocate stock basis among all properties received; this requires (when necessary) amended returns for all appropriate tax years. However, the preamble to Regs. Sec. 1.453-11(d) indicates that the Service and Treasury believe that this rule is substantially fulfilled by the reasonable-estimate requirement, without imposing the burden of filing amended returns. See TD 8762 (1/27/98).

¹⁴Generally, a taxpayer receiving payments under a contingent-price installment note recovers basis in accordance with the maximum amount receivable (if applicable). In the absence of a stated maximum selling price, basis would be recovered in equal annual portions over the fixed payment period (if one exists), over 15 years if there is no such period or under other methods in certain cases. See Temp. Regs. Sec. 15A.453-1(c). These rules can be quite harsh in substantially backloading basis recovery.

¹⁵Under Sec. 1239(c), a person controls a corporation or partnership if he owns more than 50% (directly or indirectly), or if the corporation or partnership is so owned by certain related entities under Sec. 267(b).

¹⁶Sec. 453B(a) provides generally that gain or loss is recognized when an installment note is distributed, transmitted, sold or otherwise disposed of. Such gain or loss is deemed to result from the sale or exchange of the property for which the note was received; see Sec. 453B(a)(2), flush language.

¹⁷K's election out of the installment method does not affect its shareholder's right to use Sec. 453(h).

¹⁸Sec. 336(d) limits a liquidating corporation's recognized loss on certain distributions (1) to related persons and (2) of property acquired in certain carryover-basis transactions; see Sec. 336(d)(1) and (2).