Federal Government Review of
Monetized Installment Sales
At least three federal agencies have reviewed and allowed for the use of Monetized Installment Sales transactions:
US Bankruptcy Court (Central District of California)
Monetized Installment Sales have been examined by the American Bar Association in comparison to Deferred Sales Trusts, in the presence of an IRS Official (see below).
IRS Review of Monetized Installment Sale
The IRS reviewed and approved a large monetized installment sale in 2012. The results of the IRS’s review were published in a Technical Advice Memorandum.
The IRS's analysis focused on the step transaction doctrine and the substance over form doctrine. The IRS concluded that the transaction was permissible and that the judicial doctrines of substance over form and step transaction did not apply in that case.
The memorandum summarized its findings as follows:
“Taken as a whole, the Transaction enables the seller to (1) defer reporting sale proceeds and recognizing gain from the sale of Asset under the installment sales method of I.R.C. § 453, but (2) obtain cash roughly equal to the sales proceeds from a loan secured by the installment sale notes."
The memorandum concluded by saying:
"Taxpayer needed to sell its Asset and structured the sale in a way that minimized its taxes... Substantively, the steps of the Transaction matched their form: an installment sale coupled with a monetization loan. The Transaction allowed Taxpayer to take advantage of tax deferral on the asset sale, which is a permitted result under I.R.C. §§ 453 and 453A."
SEC Review of Monetized Installment Sale
At least ten public companies have undertaken some form of monetized installment sales transaction (some multiple times) and have reported these transactions annually yearly in their financial reports, ranging between 1999 and 2017.
See GREIF Inc. at
See Kimberly Clark at
See International Paper at https://www.sec.gov/Archives/edgar/data/51434/000119312511100407/filename1.htm
See Plum Creek at
See MeadWestvaco at
See OfficeMax at
See Rayonier at
See L.P. Building Products at
See Glatfelter at
Bankruptcy Court Approves Use of
Monetized Installment Sale
A federal Bankruptcy court approved the use of a monetized installment sale on the sale of a multi- million dollar beach area home so that the bankruptcy estate could avoid paying taxes on the gain in order to maximize the cash available to creditors.
(Contact us for citation.)
American Bar Association Review
At a recent meeting of the American Bar Association, a panel discussion was held, with an IRS official on the panel. The subject was intermediated installment sales, looking both at Deferred Sales Trusts and Monetized Installment Sales. The discussion suggested that participants in Deferred Sales Trusts potentially could be exposed to IRS challenges. At 28:22 in the discussion the focus shifts to the "loan add-on," which is their term describing monetized installment sales, and after describing this approach the IRS official on the panel indicated that these do not raise any issues for the IRS and are not currently on object of attention for investigation. Click below to listen to an audio recording of the discussion.
The fact that several large public companies have undertaken the transaction, coupled by a review by different regulatory bodies of several of them in different years demonstrates that while the transactions may not be widely known, they have been successfully implemented in a variety of situations where sellers desire to defer recognition of tax on the sale of an appreciated asset.