Revocation of election out of installment method.

• Author: Hudson, Boyd D.
• Position: Brief Article

A common method of disposing of real or personal property is an installment sale. The seller receives all or a portion of the sales price in the form of an installment note providing for payment of principal and interest over a term of years. Generally the installment method of reporting is required to be used for installment sales. However, under Sec. taxpayers can elect not to have the installment method apply, and instead recognize the entire gain in the year of sale, despite the fact that payments are deferred under the notes terms.

Letter Ruling 9627019 illustrates the circumstances that must be present to obtain permission to revoke an election under Sec. 453 (d)(4). A husband and wife disposed of residential real property in an installment sale, informed the firm preparing their tax returns, and instructed the firm to use installment reporting for tax purposes. The firm included the fun amount of the sales proceeds in the taxpayers, tax return, thus inadvertently electing out of the installment method. The tax return was delivered to the taxpayers for signature on the filing deadline. After signing and amended the return, the taxpayers discovered the error.

The firm immediately took steps to remedy the error by contacting the local IRS Service Center, preparing an amended return, and attempting to file it. The Service informed the firm that the taxpayers would have to file a ruling request asking the IRS to consent to a revocation of the election out of...