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Clever Techniques To Defer Capital Gains – Maybe Too Clever

July 10, 2019

Does MIS Work?

Mr. Greenwald told me that he thinks [monetized installment sales] work provided the transaction is executed as modelled in the Chief Counsel letter.  On the other hand, he has not had a client do one as his clients want to stay in real estate and therefore favour 1031.

Lou Vlahos of Farrell Fritz PC is a lot more skeptical as he explains in this piece – Monetized Installment Sales: What Are They About?

“No, this arrangement is not undertaken as a formal pledge by the seller-taxpayer of the intermediary’s installment obligation; and, no, the intermediary’s obligation to the seller is not formally ‘secured’ by cash or cash equivalents.

Nevertheless, the monetized installment sale arrangement described above is substantively the same as one or both of these gain-recognition-triggering events. As noted, above, ‘[o]ther arrangements that have a similar effect’ should be treated in the same manner.

The IRS should clarify its position accordingly.”

Mr Vlahos highlighted something from the letter which you don’t see in other discussions that allude to it as if it were authority.

“The Transaction meets the statutory and regulatory requirements of I.R.C. § 453. Because Asset meets the definition of farm property under I.R.C. § 2032A(e)(4), Taxpayer can pledge the Purchase Notes and obtain cash through a separate loan under I.R.C. § 453A(b)(3)(B) without the proceeds being treated as a payment for installment sale purposes.” (Emphasis added)

To read the full article, please click here.

  • Related Practice Areas: Tax
  • Featured Attorneys: Louis Vlahos
  • Publications: Forbes