• Jeff Glass

Monetized Installment Sale Review – IRS, Legal, Audits, Scam?, Risks

Updated: Apr 12, 2020

When sellers of capital assets face large capital gains taxes, they sometimes turn to the Internet to research ways of avoiding those taxes. They may soon find themselves doing a “monetized installment sale” review, because this tax strategy is one of the very few options that effectively deals with capital gains tax. As explained in previous posts, (definition, and how it works) a monetized installment sale employs an installment sale to a dealer to defer tax for 30 years and a simultaneous tax-free borrowing to provide immediate liquidity from a sale.

For those not already familiar with this tax strategy, they naturally have questions about its legitimacy, such as:

  • Are monetized installment sales legal?

  • Or, is a monetized installment sale a scam?

  • Is there a monetized installment sale IRS review?

  • Have there been any monetized installment sale audits?

  • Is there a private letter ruling for monetized installment sales?

For a seller who wants to know if a monetized installment sale’s tax risks are significant, or not, there are a variety of “proof points” they may consider. We have collected some of the more significant facts supporting the validity of monetized installment sales on our Legal Basis page, which include these findings:

  • Many public companies have done these transactions over the years, with the full acquiescence of their boards, auditors and the SEC.

  • A federal bankruptcy court ordered the use of a monetized installment sale, resulting in full payoff of creditors and cash to the debtor, with notification to the IRS and state tax authority.

  • The topic was discussed at a recent meeting of the American Bar Association and, when asked if monetized installment sales were an object of scrutiny by the IRS, an IRS official in attendance stated that they are not.

Monetized Installment Sale IRS Review

The most important form of guidance of which we are aware is a review of a specific monetized installment sale by

Publicly traded companies have used monetized installment sales

the IRS. In 2012 the IRS issued a memorandum in which it discussed a transaction that is the model for most of today’s monetized installment sales. The IRS review concluded that there was no fault with the transaction.

Returning to the questions posed above, what can we say about them?

Are monetized installment sales legal, or a scam?

Monetized installment sales are not a scam. As evidence, consider first that numerous publicly traded companies have used monetized installment sales, dating back to 1999, with the full approval of their boards, auditors, attorneys and the SEC. Additionally, a California Bankruptcy court ordered the use of a monetized installment sale after it had submitted a request to both the IRS and CA Franchise Tax Board (FTB) and received no objections. Finally, in 2012 the IRS reviewed a completed Monetized Installment Sale and issued a detailed memorandum explaining their acceptance of that transaction.

Facts and circumstances vary with each situation, so we advise checking with your own qualified tax adviser.

Is there a monetized installment sale IRS review?

Yes, as mentioned, the IRS has performed a diligent review of a specific transaction which exemplifies a properly structured monetized installment sale. Some of the legal concepts considered in their evaluation include:

  • The law of installment sales;

  • The step transaction doctrine;

  • The doctrine of economic form over substance.

Is there a private letter ruling for monetized installment sales?

We are not aware of any private letter rulings for monetized installment sales, although they may exist. The IRS memorandum mentioned above is not a private letter ruling. It is a Technical Advice Memorandum, which reviews a completed transaction after the fact, rather than a hypothetical or proposed transaction as is the case with a private letter ruling. Like a private letter ruling, its findings pertain only to the transaction review and cannot, by itself, be relied upon for another transaction. Logic suggests, however, that if another transaction is modeled after one that has been reviewed and accepted by the IRS, the other transaction should also be acceptable.

Monetized Installment Sale Legal Review

Since we are not tax advisers, we always recommend to anyone considering a monetized installment sale that they seek qualified tax counsel before acting on any of the information we share on this web site. Since many tax advisers are not familiar with monetized installment sales, we can assist them in their research by providing documentation that will speed their review. We can also provide a referral to a tax attorney who is experienced with monetized installment sales. Please contact us if these resources would be helpful to you.


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