Open Transaction Treatment for Deferred Payment Sales After the Installment Sales Act of 1980

When a taxpayer sells property for a promise of future payment, it is normally to his advantage to defer any gain realized on the sale.Section 453 of the Internal Revenue Code 1 permits a seller of property in an installment sale to postpone recognition of gain until he has received payments from the purchaser, and then he need only recognize gain ratably as payments are received.In some instances, however, a seller may seek even greater deferral of gain than is provided by section 453 under so-called "open transaction" treatment.This article deals with the circumstances under which open transaction treatment may be achieved after the Installment Sales Revision Act of 1980. 2 It clearly continues to be available under the theory of Burnet v. Logan 3 to situations in which the value of the consideration received by the seller cannot be determined.The Act, its legislative history and the Treasury's temporary regulations support this result.It also should continue to be available for a cash method seller who receives a purchaser's promise of future payment the value of which can be determined, but which is not the equivalent of cash.The Act supports that result.The Senate Finance and House Ways and Means Committee reports on the Act and the Treasury's temporary regulations, however, take a contrary position.Part I of this article examines the tax consequences of deferred payment sales and compares the possible ways in which deferred payment sales may be reported.Part II discusses open transaction treatment under the theory of Burnet v. Logan.Part III deals with the continuing possibility under the Installment Sales Act of open transaction treatment for deferred payment sales by a seller using the cash method of accounting.It discusses the theoretical basis and case law support for permitting open transaction treat-•