26 U.S.C. § 453
Installment method
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.
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.
Any dealer disposition (as defined in subsection (l)).
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.
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.
Subsection (a) shall not apply to any disposition if the taxpayer elects to have subsection (a) not apply to such disposition.
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.
An election under paragraph (1) with respect to any disposition may be revoked only with the consent of the Secretary.
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.
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.
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).
Any sale or exchange of stock to the issuing corporation shall not be treated as a first disposition.
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.
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.
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.
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.
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).
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.
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.
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).
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.
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.
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.
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 section 1245 or 1250 (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.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section.
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.
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.
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.
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)).
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.
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.
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).
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).
No interest shall be determined for any payment received in the taxable year of the disposition from which the installment obligation arises.
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.
A prior section 453, acts Aug. 16, 1954, ch. 736, 68A Stat. 154;
2004—Subsec. (f)(4)(B). Pub. L. 108–357 struck out “is issued by a corporation or a government or political subdivision thereof and” before “is readily tradable”.
2000—Subsecs. (a), (d)(1), (i)(1), (k). Pub. L. 106–573 repealed Pub. L. 106–170, § 536(a). See 1999 Amendment notes below.
1999—Subsec. (a). Pub. L. 106–170, § 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)
Subsecs. (d)(1), (i)(1), (k). Pub. L. 106–170, § 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, § 1018(u)(25), substituted “subsections (g)” for “subsection (g)”.
Subsec. (f)(8). Pub. L. 100–647, § 1018(u)(26), substituted “payments to be” for “payment to be”.
Subsec. (g)(1). Pub. L. 100–647, § 1006(i)(2)(B), struck out “(within the meaning of section 1239(b))” after “between related persons”.
Pub. L. 100–647, § 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, § 1006(i)(2)(A), added par. (3).
Subsec. (h)(1)(B). Pub. L. 100–647, § 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, § 1006(e)(7)(B), substituted “section 368(c)” for “section 368(c)(1)”.
Subsec. (j). Pub. L. 100–647, § 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, § 2004(d)(5), struck out “and section 453A” after “subsection (a)” in second sentence.
Pub. L. 100–647, § 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, § 2004(d)(1), inserted “of the same type” after “disposes of personal property”.
1987—Subsec. (b)(2)(A). Pub. L. 100–203, § 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, § 10202(b)(2), added subsec. (l).
1986—Subsec. (f)(1). Pub. L. 99–514, § 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, § 642(b)(1), added par. (8).
Subsec. (g). Pub. L. 99–514, § 642(a)(1)(D), substituted “controlled entity” for “80-percent owned entity” in heading.
Subsec. (g)(1). Pub. L. 99–514, § 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, § 631(e)(8)(C), substituted “certain liquidations” for “section 337 liquidations” in heading.
Subsec. (h)(1)(A). Pub. L. 99–514, § 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, § 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, § 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, § 1809(c), substituted “section 1245 or 1250 (or so much of section 751 as relates to section 1245 or 1250)” for “section 1245 or 1250”.
Subsec. (j). Pub. L. 99–514, § 812(a), added subsec. (j) relating to current inclusion in case of revolving credit plans, etc.
1984—Subsec. (g). Pub. L. 98–369, § 421(b)(6)(C), struck out “spouse or” after “property to” in heading.
Subsec. (h)(1)(C). Pub. L. 98–369, § 421(b)(6)(B), inserted “married to each other or are”.
Subsec. (i). Pub. L. 98–369, § 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).
Pub. L. 108–357, title VIII, § 897(b),
Pub. L. 106–573, § 2,
Pub. L. 106–170, title V, § 536(c),
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.
Pub. L. 100–203, title X, § 10202(e),
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
Amendment by section 642(a)(1)(D), (3), (b) of Pub. L. 99–514 applicable to sales after
Pub. L. 99–514, title VIII, § 812(c), “In the case of the: The applicable percentage is: 1st taxable year 15 2nd taxable year 25 3rd taxable year 30 4th taxable year 30.
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.
Pub. L. 98–369, div. A, title I, § 112(b),
Amendment by section 421(b)(6)(B), (C) of Pub. L. 98–369 applicable to transfers after
Pub. L. 97–448, title III, § 311(a),
Amendment by Pub. L. 97–34 applicable to property placed in service after
Pub. L. 96–471, § 6(a),
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 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