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Investors & landlords
I've got a little more to add to the discussion. While I agree there may be non-QSB stock that is not traded on an established exchange, there are several IRS references that lead me to believe that installment sale treatment is limited to QSB stock.
1. Publication 537 (2017), Installment Sales
Stock or securities. You can’t use the installment method to report gain from the sale of stock or securities traded on an established securities market. You must report the entire gain on the sale in the year in which the trade date falls.
(This clearly rules out installment sale treatment for publicly traded stocks for installment sale treatment, as do the instructions for Form 6252).
2. Instructions for Schedule D (Form 1041) (2017)
Gain from an installment sale of QSB stock.
If all payments aren't received in the year of sale, a sale of QSB stock that isn't traded on an established securities market generally is treated as an installment sale and is reported on Form 6252. Part or all of any gain from the sale that is reported on Form 6252 for the current year may be eligible for the section 1202 exclusion. Report the long-term gain from Form 6252 on Schedule D, line 11. In column (a) of Form 8949, Part II, enter the name of the corporation whose stock was sold. In column (f), enter “Q” and in column (g) enter the amount of the allowable exclusion as a negative number. See the Instructions for Form 8949, columns (f), (g), and (h). If you are completing line 18c of Schedule D, enter as a positive number the amount of your allowable exclusion for the year on line 2 of the 28% Rate Gain Worksheet; if you excluded 60% of the gain, enter 2/3 of the exclusion: if you excluded 75% of the gain, enter 1/3 of the exclusion: if you excluded 100% of the gain, don't enter an amount.
(This highlights the fact that QSB stocks are definitely eligible for installment sale treatment).
3. Instructions for Schedule D (Form 1041) (2017)
To be QSB stock, the stock must meet all of the following tests:
1. It must be stock in a C corporation (that is, not S corporation stock).
2. It must have been originally issued after August 10, 1993.
3. As of the date the stock was issued, the corporation was a QSB. A QSB is a domestic C corporation with total gross assets of $50 million or less (a) at all times after August 9, 1993, and before the stock was issued, and (b) immediately after the stock was issued. Gross assets include those of any predecessor of the corporation. All corporations that are members of the same parent-subsidiary controlled group are treated as one corporation.
4. The estate or trust acquired the stock at its original issue (either directly or through an underwriter), either in exchange for money or other property or as pay for services (other than as an underwriter) to the corporation. In certain cases, the estate or trust may meet the test if it acquired the stock from another person who met this test (such as by gift or inheritance) or through a conversion or exchange of QSB stock the estate or trust held.
5. During substantially all the time the estate or trust held the stock:
a. The corporation was a C corporation,
b. At least 80% of the value of the corporation's assets was used in the active conduct of one or more qualified businesses (defined below), and
c. The corporation wasn't a foreign corporation, DISC, former DISC, corporation that has made (or that has a subsidiary that has made) a section 936 election, regulated investment company, real estate investment trust, REMIC, FASIT, or cooperative.
Qualified business.
A qualified business is any business OTHER than the following:
• One involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services;
• One whose principal asset is the reputation or skill of one or more employees;
• Any banking, insurance, financing, leasing, investing, or similar business;
• Any farming business (including the raising or harvesting of trees);
• Any business involving the production of products for which percentage depletion can be claimed; or
• Any business of operating a hotel, motel, restaurant, or similar business.
(That leaves an awful lot of possibilities for non-QSB, non-publicly traded stocks that would appear not to have been addressed by the IRS when it comes to installment sale treatment.
However, while non-QSB, non-publicly traded stocks are not specifically excluded (as publicly traded stocks are), they are NOT specifically included (as in #2 above) in any "how to" instructions from the IRS. Absent further research, I'd be hesitant to claim installment sale treatment for non-QSB, non-publicly traded stock.
1. Publication 537 (2017), Installment Sales
Stock or securities. You can’t use the installment method to report gain from the sale of stock or securities traded on an established securities market. You must report the entire gain on the sale in the year in which the trade date falls.
(This clearly rules out installment sale treatment for publicly traded stocks for installment sale treatment, as do the instructions for Form 6252).
2. Instructions for Schedule D (Form 1041) (2017)
Gain from an installment sale of QSB stock.
If all payments aren't received in the year of sale, a sale of QSB stock that isn't traded on an established securities market generally is treated as an installment sale and is reported on Form 6252. Part or all of any gain from the sale that is reported on Form 6252 for the current year may be eligible for the section 1202 exclusion. Report the long-term gain from Form 6252 on Schedule D, line 11. In column (a) of Form 8949, Part II, enter the name of the corporation whose stock was sold. In column (f), enter “Q” and in column (g) enter the amount of the allowable exclusion as a negative number. See the Instructions for Form 8949, columns (f), (g), and (h). If you are completing line 18c of Schedule D, enter as a positive number the amount of your allowable exclusion for the year on line 2 of the 28% Rate Gain Worksheet; if you excluded 60% of the gain, enter 2/3 of the exclusion: if you excluded 75% of the gain, enter 1/3 of the exclusion: if you excluded 100% of the gain, don't enter an amount.
(This highlights the fact that QSB stocks are definitely eligible for installment sale treatment).
3. Instructions for Schedule D (Form 1041) (2017)
To be QSB stock, the stock must meet all of the following tests:
1. It must be stock in a C corporation (that is, not S corporation stock).
2. It must have been originally issued after August 10, 1993.
3. As of the date the stock was issued, the corporation was a QSB. A QSB is a domestic C corporation with total gross assets of $50 million or less (a) at all times after August 9, 1993, and before the stock was issued, and (b) immediately after the stock was issued. Gross assets include those of any predecessor of the corporation. All corporations that are members of the same parent-subsidiary controlled group are treated as one corporation.
4. The estate or trust acquired the stock at its original issue (either directly or through an underwriter), either in exchange for money or other property or as pay for services (other than as an underwriter) to the corporation. In certain cases, the estate or trust may meet the test if it acquired the stock from another person who met this test (such as by gift or inheritance) or through a conversion or exchange of QSB stock the estate or trust held.
5. During substantially all the time the estate or trust held the stock:
a. The corporation was a C corporation,
b. At least 80% of the value of the corporation's assets was used in the active conduct of one or more qualified businesses (defined below), and
c. The corporation wasn't a foreign corporation, DISC, former DISC, corporation that has made (or that has a subsidiary that has made) a section 936 election, regulated investment company, real estate investment trust, REMIC, FASIT, or cooperative.
Qualified business.
A qualified business is any business OTHER than the following:
• One involving services performed in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, or brokerage services;
• One whose principal asset is the reputation or skill of one or more employees;
• Any banking, insurance, financing, leasing, investing, or similar business;
• Any farming business (including the raising or harvesting of trees);
• Any business involving the production of products for which percentage depletion can be claimed; or
• Any business of operating a hotel, motel, restaurant, or similar business.
(That leaves an awful lot of possibilities for non-QSB, non-publicly traded stocks that would appear not to have been addressed by the IRS when it comes to installment sale treatment.
However, while non-QSB, non-publicly traded stocks are not specifically excluded (as publicly traded stocks are), they are NOT specifically included (as in #2 above) in any "how to" instructions from the IRS. Absent further research, I'd be hesitant to claim installment sale treatment for non-QSB, non-publicly traded stock.
June 3, 2019
4:22 PM
