IRS permits revocation of an inadvertent election out of installment reporting

Plain-English summary

A taxpayer sold property for cash and a promissory note, with part of the sale eligible for installment reporting under section 453. Its return preparer inadvertently reported all of the gain in the sale year instead of using the installment method. Another firm discovered the error while preparing the partners' returns and promptly notified the taxpayer and original preparer. The IRS found that the election out was inadvertent, was not based on hindsight or tax avoidance, and did not involve closed payment years. It gave the taxpayer 75 days to revoke the election by filing an amended sale-year return and any other affected previously filed returns using the installment method.

Ruling snapshot

• Question: Could the taxpayer revoke its inadvertent election out of installment reporting for the property sale?
• Outcome: approved (the taxpayer received 75 days to file the required amended returns)
• Key authorities: IRC § 453(a), (d); Treas. Reg. § 15a.453-1(d)(4)

Full text (IRS public release)

Internal Revenue Service                                      Department of the Treasury
                                                              Washington, DC 20224

Number: 202024005                                             Third Party Communication: None
Release Date: 6/12/2020                                       Date of Communication: Not Applicable
Index Number: 453.08-00
                                                              Person To Contact:
------------------                                            -----------------------, ID No. -----------------
-------------                                                 Telephone Number:
----------------------------                                  --------------------
---------------------------------                             Refer Reply To:
------------------------                                      CC:ITA:B05
---------------------------------                             PLR-122117-19
                                                              Date: March 11, 2020




Taxpayer       =   ------------------------------------------------------------------------------------
Date           =   -------------
Year A         =   -------
Buyer          =   ------------------------------------------------------------
$w             =   -----------------
$x             =   ---------------
$y             =   ---------------
$z             =   ---------------
Year B         =   -------
Year C         =   -------
Firm A         =   ------------------
Firm B         =   ------------------------------------------
Year D         =   -------


Dear ------------:

This letter refers to the Taxpayer’s request for a private letter ruling for permission to
revoke its election out of the installment method for the sale of certain property under
§ 453 of the Internal Revenue Code (Code) and § 15a.453-1(d)(4) of the Income Tax
Regulations (Regulations).

FACTS

On Date of Year A, Taxpayer sold property to Buyer for a total sales price of $w. Of this
amount, $x is for property eligible to be reported on the installment method. Buyer paid
Taxpayer $y and a promissory note for $z (the remainder of $w) in Year A. Under the
provisions of the note, Buyer must pay the principal balance with any interest due to
Taxpayer in one lump sum in a year subsequent to Year A, but no later than Date of
PLR-122117-19                                2

Year B. Buyer paid $z to Taxpayer in Year C. When preparing Taxpayer’s Federal
income tax return for Year A, Firm A inadvertently did not report the eligible gain from
the sale on the installment method under § 453 of the Code, but instead reported all of
the gain on Taxpayer’s Year A Federal income tax return. Firm B noticed the error in
Year D while preparing Taxpayer’s partners’ Year A Federal income tax returns. Firm B
promptly notified Firm A and Taxpayer in Year D. Subsequently, Taxpayer requested
this ruling.

LAW AND ANALYSIS

Section 453(a) of the Code provides that income from an installment sale shall be taken
into account under the installment method. Section 453(d)(1) provides that § 453(a)
shall not apply to any sale if the taxpayer elects not to have § 453(a) apply to the sale.

Section 453(d)(2) of the Code provides that, except as otherwise provided by
regulations, an election under § 453(d)(1) with respect to a sale may be made only on or
before the due date prescribed by law (including extensions) for filing the taxpayer's
return for the taxable year in which the sale occurs. Such an election shall be made in
the manner prescribed by the regulations.

Section 453(d)(3) of the Code provides that an election under § 453(d)(1) with respect
to any sale may be revoked only with consent of the Secretary.

Section 15a.453-1(d)(4) of the Regulations states that an election out of the installment
method may be revoked only with consent of the Internal Revenue Service. A
revocation will not be permitted when one of its purposes is the avoidance of federal
taxes, or when the taxable year in which any payment was received is closed.

In this case, the information submitted indicates that Taxpayer inadvertently elected out
of the installment method. Additionally, Taxpayer did not use hindsight in requesting
relief, and it’s request is not for the purpose of avoiding federal taxes. Further, the
Taxpayer’s taxable years in which it received payments are not closed.

CONCLUSION

Based on careful consideration of all the information submitted and the representation
made, Taxpayer is granted permission to revoke its election out of the installment
method for the Year A sale of Asset. Permission is granted for the period that ends 75
days after the date of this letter. In order to revoke its election out of the installment
method, Taxpayer must file an amended Federal income tax return for Year A and any
other previously filed returns on which a portion of the gain from the sale is reportable
under the installment method.
PLR-122117-19                                           3

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the ruling request, it is subject to verification on examination.

A copy of this letter must be attached to any income tax return to which it is relevant.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                                  Sincerely,



                                                  Christina M. Glendening
                                                  Senior Counsel, Branch 5
                                                  Office of Associate Chief Counsel
                                                  (Income Tax & Accounting)

Enclosure


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