Annuity for Installmetn sale treatment 453

Technical topics regarding tax preparation.
#1
COGS  
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I am curious about using an annuity for installment sale treatment. I must admit I had not heard of these structured sales. And I don't see commentary on this at TaxProTalk.

I am not certain this Journal of accountancy article is on point as it does not reference Sec. 453 which is what the promoters cite.

https://www.journalofaccountancy.com/is ... ities.html


PROPOSED NEW TREATMENT
Under the proposed regulations, if an annuity contract is received in exchange for property other than money:
1. The amount realized attributable to the annuity contract is the contract’s FMV (as determined under IRC § 7520) at the time of the exchange.
2. The entire amount of the gain or loss, if any, is recognized at the time of the exchange, regardless of the taxpayer’s accounting method.
3. To determine the investment in the contract as of the annuity starting date (under IRC § 72(c)(1)), the aggregate amount of premiums or other consideration paid for the contract equals the portion of the amount realized on the exchange that is attributable to the contract—which is the contract’s FMV at the time of the exchange.
This rule is intended to ensure that no portion of the gain or loss on the exchange is duplicated or omitted by the application of IRC § 72 in the post-exchange years.
The annuitant’s investment in the contract would be reduced in subsequent years (under IRC § 72(c)(1)(B)) for amounts already received under the contract subsequent to the exchange and excluded from gross income when received as a return of the annuitant’s investment in the contract.
Comment: In situations where the FMV of the property exchanged equals the FMV of the annuity contract received, the investment in the contract equals the FMV of the property exchanged for the contract.
To apply these proposed regulations to an exchange of property for an annuity contract, taxpayers must determine the contract’s FMV under the valuation tables prescribed by IRC § 7520.
Note: Since these proposals would require the entire gain or loss to be immediately recognized, each subsequent annuity payment would consist only of an excludible portion and a taxable ordinary income portion.

The promoters put forth arguments that it is valid: https://www.4structures.com/structured- ... ment-sales

The Pub Ref. only mentions annuities once: An annuity contract issued in connection with a sale or exchange of property if the contract is described in section 1275(a)(1)

Maybe it is all legitimate. I just don't recall hearing about it at 1031 seminars, etc.
 

#2
Noobie  
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Usually, if there is a promoter, it is an invalid treatment. Similar to the Charitable deduction for Conservation easements that were 500% of cost of investment.
 

#3
Nilodop  
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I am not certain this Journal of accountancy article is on point as it does not reference Sec. 453 which is what the promoters cite. It actually does reference installment sales several times.
 


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