1. For the installment method, you would not say? The

1. For the installment method, you would not say?

The direct pledge of certain installment notes to secure a loan is treated as a deemed payment on the installment note to the extent of the net proceeds received

The amount realized by a related party buyer on the resale within two years of property purchased from a related party seller on the installment method is treated as received by the related party seller.

The gross profit percentage is equal to the ratio of the gross profit to the total sales price.

The amount of each payment received or deemed received by the seller that must be reported as gain is determined by multiplying the gross profit percentage by the total amount of payments received for the year.


When performing an installment gain computation, you would not perform which step?

Gains and losses attributable to fluctuations in the value of the foreign currency from the date of sale to the date payments are received in the foreign currency will be separately accounted for under the foreign currency transaction rules (generally as ordinary gain or loss).

The stated maximum selling price is determined by assuming that all the contingencies contemplated by the agreement are not met or otherwise resolved in a manner that minimizes the selling price and defers payments to the latest date permitted under the agreement.

When a stated maximum selling price cannot be determined, but the maximum period over which payments are to be received is fixed, basis is allocated to the taxable years in which payments are to be received in equal annual increments.

The IRS may closely scrutinize a “sale” if the agreement does not specify a maximum selling price or a fixed payment period, to determine whether a sale actually occurred or whether the payments received under the agreement are more accurately characterized as rent or royalty income


When advising on installment sales, you would not advise?

When a dealer sells personal or real property in an installment sale, all taxable gain from installment sales must be reported in the year of sale. There is an exception to this rule applicable to dealer installment sales of farm property and certain installment sales of timeshares and residential lots.

If personal property sold in an installment sale is not of the same type as that regularly sold by a dealer on the installment plan, the dealer may not use the installment method to report the gain because of the dealer status that exists.

The installment method cannot be used to report gain on any disposition of personal property under a revolving credit plan. A “revolving credit plan” is an arrangement under which a customer agrees to pay a part of the outstanding balance of his account each billing month. Revolving credit plans are also referred to as cycle budget accounts, flexible budget accounts, and continuous budget accounts.

The installment method cannot be used to report the gain from sales of stock or securities that are traded on an established securities market

4. Concerning payments received or deemed received on an installment obligation, you would be incorrect if you said?

Question 4 options:

If a seller uses an installment note from the sale of property to directly secure any loan, the net proceeds from the loan are treated as a payment received on the installment note.

The following type of obligation is treated as a payment to the seller in the year received:

an obligation with interest coupons attached (whether or not it is readily tradable in an established securities market)

Forfeitable payments, such as contingent deposits, received by the seller from the buyer before the year of sale are treated as received in the year of sale for purposes of computing gain recognition

A standby letter of credit is treated as a third-party guarantee and, thus, is not considered a payment on the installment note it secures assuming it is non-negotiable, non-transferable, issued by a bank or financial institution, and serves as a guarantee of the obligation it secures

5. Concerning installment note dispositions, you would not say?

Substitution of note of one purchaser for note of a different purchaser where new note had a maturity date and interest rate that was different from the old note constitutes a disposition of the installment obligation thus accelerating the deferred gain.

If the seller sells or exchanges the installment note, or if the seller accepts less than the face value in satisfaction of the note, the gain or loss is the difference between the seller’s basis in the note and the amount the seller realizes on the sale.

A sale, gift, or exchange of a partnership interest in a partnership that holds as one of its assets an installment note does not constitute a sale or exchange of the underlying asset. In this case the entity theory is followed under the partnership provisions of the statute.

An installment obligation acquired in a sale or exchange of inventory, stock in trade, or property held for sale in the ordinary course of business is a qualifying installment obligation only if the obligation arises from a single sale to one person of substantially all of such property attributable to a trade or business of the corporation

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