Cash method taxpayer must realize gain/loss on sale of stock in year of trade.

• Author: Andrews, Jim

For Federal income tax purposes, gain or profit from qualifying installment sales of property may be reported under the installment method. An installment sale is a disposition of property in which at least one payment is received after the close of the tax year in which the disposition occurs. Although an installment sale must have at least one payment received in a tax year after the year of sale, there is no requirement that there be more than one payment. Sec. 453 further provides that the installment method will not apply to any disposition if the taxpayer elects not to have Sec. 453 apply. A taxpayer who elects not to report income from an installment sale on the installment method must recognize gain in accordance with the taxpayer's method of accounting.

In Rev. Rul. 93-84, a cash method, calendar-year taxpayer who sold stock traded on an established securities market in 1992, and did not receive the proceeds of the sale until early 1993, was required to report the gain or loss in 1992. In the past, this type of transaction qualified for installment sale treatment and was commonly used by taxpayers to choose the year a gain would be recognized for tax purposes by electing out of (or choosing to remain under) the installment rules of Sec. 453. The Tax Reform Act of 1986 (TRA) added Sec. 453(k), which requires that income and loss on publicly traded securities be recognized in the year of disposition (trade date).

In Rev. Rul. 93-84, the taxpayer held stock traded on an established securities market for several years. On Dec. 31, 1992, the taxpayer contacted a broker and placed a regular-way sale order on the stock. The broker executed the trade on the same day (the "trade date"). The taxpayer delivered the stock certificates to the broker and the broker delivered the proceeds of the...