Tax Accounting Corner

The Tax Court recently addressed whether a taxpayer's sale of her partnership interest was properly reported under Code Sec. 453 using the installment method and the impact on her accounting method, including being subject to a Code Sec. 481(a) adjustment. To qualify as an installment sale, the Internal Revenue Code requires that "at least one payment be received after the close of the taxable year in which the disposition (of property) occurs." In Rev. Rul. 73-396, the IRS stated that it is irrelevant for purposes of Code Sec. 453 whether the purchaser is willing to pay the total contract price in the year of sale. With limited exceptions, the installment method rules apply to the disposition of any property, including partnership interests. Under Code Sec. 453(b), this requires at least one payment to be received in a tax year subsequent to the tax year of the disposition and that the selling partner is not a dealer in partnership interests.