Question

Which of the following statements is incorrect concerning the disposition of an installment note?

a. Installment treatment is not allowed for sale of securities traded on established markets.

b. The installment method may not be used to report gains from sales of any property produced in the business of farming

c. Failure to charge adequate interest may result in imputed interest at Federal rate.

d. Disposition of property by related purchaser within 2 years after the sale generally accelerates recognition of gain on installment obligation for related seller.

Answer 1

The statement D is icorrect.

Instalment reporting cannot be used dor certain assets including sale of inventory and sale of securities traded on etsblished market.

A dealer disposition does not include any dispostion on the instalment plan of any property used or produced in the trade or business of farming. The exception is to this is sale of farm equipmet to farmers by the manufacturers of the euipment.

If the intslment salecontract does not provide for adequate interest using the applicable federal rate then interest will be imputed. Generally, interest income, stated or imputed will be taxed as ordinary income.

The disposition of property by related purchaser with in 2 years after the sale does not accelerate recognition of gain on instalmet obligation for related seller. The seller is only liable for the proceeds from the initial contract with the purchaser.