Installment Sale
The installment method applies automatically unless the taxpayer elects out of it by the (extended) due date of the return for the year of sale. The election is made by reporting the whole gain on the sale and, if applicable, showing the amount of a note reported at less than face value on Form 8949 or Form 4797. (Form 6252 is not used if electing out of the installment method.) The election out is irrevocable without showing “good cause” and getting IRS consent.
Rev Rul 90-46 1990-1 CB 107 provides guidelines which taxpayers can use to justify a late election out of the installment method. Error on the part of a third party might be enough to show “good cause.” For example, an accountant’s mistake in failing to make the election may be good cause.
The following DO NOT show good cause:
-
making the late election to simplify the taxpayer’s recordkeeping and reporting requirements;
-
changes in the tax law or taxpayer’s circumstances after the election due date.
In a private letter ruling, taxpayers were allowed to revoke their election out of using the installment method, where their accountant had erroneously computed that the installment method would not be beneficial to them. The taxpayers were unaware of the accountant’s actions, and the accountant only realized the error when he prepared their second-year return. (PLR 201503005)