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Washington Tax Alert April 16, 2008 (Installment method)

Washington Tax Alert from Don Barnes, dbarnes@washingtontaxlaw.com
April 16, 2008

A taxpayer may report all the gain from the sale of assets in the year of sale, even though the sale qualifies for the installment method under IRC § 453(a) and the installment method would be advantageous for the taxpayer. When that happens, the taxpayer's failure to report the gain on the installment method may be attributable to a miscommunication between the taxpayer and the CPA firm preparing its return, or an oversight on the part of the return preparer that the sale qualified for the installment method.

Upon discovering the problem, the taxpayer cannot file an amended return for the year in which the sale took place and retroactively use the installment method. The only recourse is a private letter ruling requesting the IRS National Office's consent to use the installment method. The National Office recently granted relief to two taxpayers in this situation -- an S corporation that sold assets in exchange for cash and a promissory note, and a cash basis partnership in the real estate business that sold rental property through a qualified intermediary but was unable to complete a like-kind exchange within the required period. See PLR 200813032 and PLR 200813019.

In these rulings, the National Office specifically noted a "miscommunication problem" between the taxpayer and its return preparer, and the taxpayer's reliance on the accountant to advise it regarding "any provision that might benefit Taxpayer."