IRS letter ruling 9306001: a window of opportunity to sell publicly traded stock and use the installment method.

• Author: Bailine, Richard W.
• Position: Brief Article

Sec. 453(k)(2) excludes from installment method treatment stock traded on an established securities market. A recent technical advice memorandum appears, however, to offer a vehicle for selling publicly traded stock and recognizing the gain under the installment method. IRS Letter Ruling (TAM) 9306001 involved the sale of convertible preferred stock (which was treated in the TAM as publicly traded stock) as well as the sale of shares of an S corporation that owned some of the same convertible preferred stock. Not surprisingly, the TAM concluded that under Sec. 453(k)(2) the installment method was unavailable for the sale of the (deemed publicly traded) convertible preferred stock. For the sale of the S stock, however, the TAM determined that the taxpayer could use the installment method; while the Treasury was authorized to do so, it had not yet provided regulations preventing the use of passthrough entities to avoid Sec. 453(k)(2).

The flush language of section 453(k) provides the Secretary with the authority to provide for the application of section 453(k) in whole or in part for transactions in which the rules of the section would be avoided through use of related parties, pass-thru entities, or intermediaries. Because the Secretary has not issued regulations pursuant to this authority, however, the flush language may not be applied to the sale of the S common stock.

Example: P, an owner of publicly traded stock with...