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Internal Revenue Code, § 453B. Gain Or Loss On Disposition Of Installment Obligations

I.R.C. § 453B(a) General Rule
If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold, or otherwise disposed of, gain or loss shall result to the extent of the difference between the basis of the obligation and—
I.R.C. § 453B(a)(1)
the amount realized, in the case of satisfaction at other than face value or a sale or exchange, or
I.R.C. § 453B(a)(2)
the fair market value of the obligation at the time of distribution, transmission, or disposition, in the case of the distribution, transmission, or disposition otherwise than by sale or exchange.
Any gain or loss so resulting shall be considered as resulting from the sale or exchange of the property in respect of which the installment obligation was received.
I.R.C. § 453B(b) Basis Of Obligation
The basis of an installment obligation shall be the excess of the face value of the obligation over an amount equal to the income which would be returnable were the obligation satisfied in full.
I.R.C. § 453B(c) Special Rule For Transmission At Death
Except as provided in section 691 (relating to recipients of income in respect of decedents), this section shall not apply to the transmission of installment obligations at death.
I.R.C. § 453B(d) Exception For Distributions To Which Section 337(a) Applies
Subsection (a) shall not apply to any distribution to which section 337(a) applies.
I.R.C. § 453B(e) Life Insurance Companies
I.R.C. § 453B(e)(1) In General
In the case of a disposition of an installment obligation by any person other than a life insurance company (as defined in section 816(a)) to such an insurance company or to a partnership of which such an insurance company is a partner, no provision of this subtitle providing for the nonrecognition of gain shall apply with respect to any gain resulting under subsection (a). If a corporation which is a life insurance company for the taxable year was (for the preceding taxable year) a corporation which was not a life insurance company, such corporation shall, for purposes of this subsection and subsection (a), be treated as having transferred to a life insurance company, on the last day of the preceding taxable year, all installment obligations which it held on such last day. A partnership of which a life insurance company becomes a partner shall, for purposes of this subsection and subsection (a), be treated as having transferred to a life insurance company, on the last day of the preceding taxable year of such partnership, all installment obligations which it holds at the time such insurance company becomes a partner.
I.R.C. § 453B(e)(2) Special Rule Where Life Insurance Company Elects To Treat Income As Not Related To Insurance Business
Paragraph (1) shall not apply to any transfer or deemed transfer of an installment obligation if the life insurance company elects (at such time and in such manner as the Secretary may by regulations prescribe) to determine its life insurance company taxable income—
I.R.C. § 453B(e)(2)(A)
by returning the income on such installment obligation under the installment method prescribed in section 453, and
I.R.C. § 453B(e)(2)(B)
as if such income were an item attributable to a noninsurance business.
I.R.C. § 453B(e)(3) Noninsurance Business
I.R.C. § 453B(e)(3)(A) In General
For purposes of this subsection, the term “noninsurance business” means any activity which is not an insurance business.
I.R.C. § 453B(e)(3)(B) Certain Activities Treated As Insurance Businesses
For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if—
I.R.C. § 453B(e)(3)(B)(i)
it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or
I.R.C. § 453B(e)(3)(B)(ii)
it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.
I.R.C. § 453B(f) Obligation Becomes Unenforceable
For purposes of this section, if any installment obligation is canceled or otherwise becomes unenforceable—
I.R.C. § 453B(f)(1)
the obligation shall be treated as if it were disposed of in a transaction other than a sale or exchange, and
I.R.C. § 453B(f)(2)
if the obligor and obligee are related persons (within the meaning of section 453(f)(1)), the fair market value of the obligation shall be treated as not less than its face amount.
I.R.C. § 453B(g) Transfers Between Spouses Or Incident To Divorce
In the case of any transfer described in subsection (a) of section 1041 (other than a transfer in trust)—
I.R.C. § 453B(g)(1)
subsection (a) of this section shall not apply, and
I.R.C. § 453B(g)(2)
the same tax treatment with respect to the transferred installment obligation shall apply to the transferee as would have applied to the transferor.
I.R.C. § 453B(h) Certain Liquidating Distributions By S Corporations
If—
I.R.C. § 453B(h)(1)
an installment obligation is distributed by an S corporation in a complete liquidation, and
I.R.C. § 453B(h)(2)
receipt of the obligation is not treated as payment for the stock by reason of section 453(h)(1),
then, except for purposes of any tax imposed by subchapter S, no gain or loss with respect to the distribution of the obligation shall be recognized by the distributing corporation. Under regulations prescribed by the Secretary, the character of the gain or loss to the shareholder shall be determined in accordance with the principles of section 1366(b).
(Added Pub. L. 96-471, Sec. 2(a), Oct. 19, 1980, 94 Stat. 2252, and amended Pub. L. 96-471, Sec. 2(c)(3), Oct. 19, 1980, 94 Stat. 2254; Pub. L. 97-448, title III, Sec. 302, Jan. 12, 1983, 96 Stat. 2398; Pub. L. 98-369, div. A, title I, Sec. 43(c)(2), title II, Sec. 211(b)(6), title IV, Sec. 421(b)(3), 492(b)(3), July 18, 1984, 98 Stat. 558, 754, 794, 854; Pub. L. 99-514, title VI, Sec. 631(e)(9), title X, Sec. 1011(b)(1), title XVIII, Sec. 1842(c), Oct. 22, 1986, 100 Stat. 2274, 2389, 2853; Pub. L. 100-647, title I, Sec. 1006(e)(22), Nov. 10, 1988, 102 Stat. 3403; Pub. L. 101-508, title XI, Sec. 11702(a)(2), Nov. 5, 1990, 104 Stat. 1388-514; Pub. L. 115-97, title I, Sec. 13512(b)(1)(A), (B), Dec. 22, 2017, 131 Stat. 2054; Pub. L. 115-141, Div. U, title IV, Sec. 401(a)(111), Mar. 23, 2018, 132 Stat. 348.)
BACKGROUND NOTES
AMENDMENTS
2018 — Sec. 453B. Pub. L. 115-141, Div. U, Sec. 401(a)(111), amended the heading of Sec. 453B by substituting “LOSS ON DISPOSITION” for “LOSS DISPOSITION”.
2017 — Subsecs. (e)(2)(B). Pub. L. 115-97. Sec. 13512(b)(1)(A), amended subpar. (B) by striking ‘‘(as defined in section 806(b)(3))’’.
2017 — Subsecs. (e)(3). Pub. L. 115-97, Sec. 13512(b)(1)(B), amended subsec. (e) by adding par. (3).
1990 — Subsec. (d). Pub. L. 101-508 substituted heading for one which read: ‘Effect of distribution in liquidations to which section 332 applies’ and amended text generally. Prior to amendment, text read as follows: ‘If -
‘(1) an installment obligation is distributed in a liquidation to which section 332 (relating to complete liquidations of subsidiaries) applies, and
‘(2) the basis of such obligation in the hands of the distributee is determined under section 334(b)(1), then no gain or loss with respect to the distribution of such obligation shall be recognized by the distributing corporation.’
1988 — Subsec. (h). Pub. L. 100-647 added subsec. (h).
1986 — Subsec. (d). Pub. L. 99-514, Sec. 631(e)(9), amended subsec. (d) generally, substituting ‘liquidations to which section 332 applies’ for ‘certain liquidations’ in heading, striking out par. (1) designation, redesignating subpars. (A) and (B) as pars. (1) and (2), and striking out former par. (2) relating to liquidations to which section 337 applies.
Subsec. (e)(2)(B). Pub. L. 99-514, Sec. 1011(b)(1), substituted ‘section 806(b)(3)’ for ‘section 806(c)(3)’.
Subsec. (g). Pub. L. 99-514, Sec. 1842(c), inserted ‘(other than a transfer in trust)’.
1984 — Subsec. (d)(2). Pub. L. 98-369, Sec. 492(b)(3), struck out ‘1251(c),’ after ‘1250(a),’ in provision following subpar. (B).
Subsec. (d)(2). Pub. L. 98-369, Sec. 43(c)(2), substituted ‘1254(a), or 1276(a)’ for ‘or 1254(a)’.
Subsec. (e)(1). Pub. L. 98-369, Sec. 211(b)(6)(A), substituted ‘section 816(a)’ for ‘section 801(a)’.
Subsec. (e)(2). Pub. L. 98-369, Sec. 211(b)(6)(B), substituted ‘as not related to insurance business’ for ‘as investment income’ in heading, and in text substituted ‘as if such income were an item attributable to a noninsurance business (as defined in section 806(c)(3))’ for ‘if such income would not otherwise be returnable as an item referred to in section 804(b) or as long-term capital gain, as if the income on such obligations were income specified in section 804(b)’.
Subsec. (g). Pub. L. 98-369, Sec. 421(b)(3), added subsec. (g).
1983 — Subsec. (d)(2). Pub. L. 97-448 substituted ‘under subsection (a)’ for ‘under paragraph (1)’ in second sentence.
1980 — Subsec. (d). Pub. L. 96-471, Sec. 2(c)(3), inserted last sentence providing that in the case of any installment obligation which would have met the requirements of subpars. (A) and (B) of par. (2) but for sections 337(f), gain shall be recognized to such corporation by reason of such distribution only to the extent gain would have been recognized under sections 337(f) if such corporation had sold or exchanged such installment obligation on the date of such distribution.
EFFECTIVE DATE OF 2018 AMENDMENTS
Amendment by Pub. L. 115-141, Div. U, Sec. 401(a)(111), effective March 23, 2018.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendments by Pub. L. 115-97, Sec. 13512(b)(1)(A) and (B), effective for taxable years beginning after December 31, 2017.
EFFECTIVE DATE OF 1990 AMENDMENTS
Amendment by Pub. L. 101-508 effective as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 11702(j) of Pub. L. 101-508, set out as a note under section 59 of this title.
EFFECTIVE DATE OF 1990 AMENDMENTS
Amendment by Pub. L. 101-508 effective as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, Pub. L. 100-647, to which such amendment relates, see section 11702(j) of Pub. L. 101-508, set out as a note under section 59 of this title.
EFFECTIVE DATE OF 1988 AMENDMENTS
Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 631(e)(9) of Pub. L. 99-514 applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after July 31, 1986, unless such corporation is completely liquidated before Jan. 1, 1987, any transaction described in section 338 of this title for which the acquisition date occurs after Dec. 31, 1986, and any distribution, not in complete liquidation, made after Dec. 31, 1986, with exceptions and special and transitional rules, see section 633 of Pub. L. 99-514, set out as an Effective Date note under section 336 of this title.
Section 1011(c)(1) of Pub. L. 99-514 provided that: ‘The amendments made by this section (amending this section and sections 465, 801, 804 to 806, 813, and 815 of this title, enacting provisions set out as a note under section 801 of this title, and amending provisions set out as a note under section 806 of this title) shall apply to taxable years beginning after December 31, 1986.’
Amendment by section 1842(c) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1984 AMENDMENTS
Amendment by section 43(c)(2) of Pub. L. 98-369 applicable to taxable years ending after July 18, 1984, see section 44 of Pub. L. 98-369, set out as an Effective Date note under section 1271 of this title.
Amendment by section 211(b)(6) of Pub. L. 98-369 applicable to taxable years beginning after Dec. 31, 1983, see section 215 of Pub. L. 98-369, set out as an Effective Date note under section 801 of this title.
Amendment by section 421(b)(3) of Pub. L. 98-369 applicable to transfers after July 18, 1984, in taxable years ending after such date, subject to election to have amendment apply to transfers after 1983 or to transfers pursuant to existing decrees, see section 421(d) of Pub. L. 98-369, set out as an Effective Date note under section 1041 of this title.
Amendment by section 492(b)(3) of Pub. L. 98-369 applicable to taxable years beginning after Dec. 31, 1983, see section 492(d) of Pub. L. 98-369, set out as a note under section 170 of this title.
EFFECTIVE DATE OF 1983 AMENDMENTS
Amendment by Pub. L. 97-448 applicable to dispositions made after Oct. 19, 1980, in taxable years ending after such date, see section 311(a) of Pub. L. 97-448, set out as a note under section 453 of this title.
EFFECTIVE DATE OF 1980 AMENDMENTS
For effective date of amendment by Pub. L. 96-471, see section 6(a)(6) of Pub. L. 96-471, set out as an Effective Date note under section 453 of this title.
EFFECTIVE DATE
For effective date, see section 6(a)(1), (5) of Pub. L. 96-471, set out as a note under section 453 of this title.
PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI (Sec. 1101-1147 and 1171-1177) or title XVIII (Sec. 1800-1899A) of Pub. L. 99-514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99-514, as amended, set out as a note under section 401 of this title.
TREATMENT OF ELECTIONS UNDER SECTION 453B(E)(2)
Section 217(b) of Pub. L. 98-369, as amended by Pub. L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘If an election is made under section 453B(e)(2) before January 1, 1984, with respect to any installment obligation, any income from such obligation shall be treated as attributable to a noninsurance business (as defined in section 806(c)(3) of the Internal Revenue Code of 1986 (formerly I.R.C. 1954)).'
PRIOR PROVISIONS
Provisions similar to those comprising this section were contained in former section 453 of this title.
[453C. Repealed. Pub. L. 100-203, title X, 10202(a)(1), Dec. 22, 1987, 101 Stat. 1330-388]
Section, added Pub. L. 99-514, title VIII, 811(a), Oct. 22, 1986, 100 Stat. 2365, and amended Pub. L. 100-647, title I, 1008(f)(1)-(5), Nov. 10, 1988, 102 Stat. 3441, 3442, related to treatment of certain indebtedness as payment on installment obligations.
Effective Date of Repeal
Repeal by Pub. L. 100-203 applicable to dispositions in taxable years beginning after Dec. 31, 1987, with special rules for dealers and non-dealers, and coordination with Tax Reform Act of 1986, see section 10202(e)(1)-(3), (5) of Pub. L. 100-203, set out as a note under section 453 of this title.
Applicability of Amendments by Pub. L. 100-203 and Pub. L. 100-647
Pub. L. 100-647, title I, 1008(f)(9), Nov. 10, 1988, 102 Stat. 3442, provided that: “For purposes of applying the amendments made by this subsection [amending this section and provisions set out below] and the amendments made by section 10202 of the Revenue Act of 1987 [Pub. L. 100-203, amending sections 56, 381, 453, 453A, and 691 of this title and repealing section 453C of this title], the provisions of this subsection shall be treated as having been enacted immediately before the enactment of the Revenue Act of 1987 [Dec. 22, 1987].”
Effective Date; Allocation of Indebtedness as Payment on Installment Obligation
Section 811(c) of Pub. L. 99-514, as amended by Pub. L. 100-647, title I, 1008(f)(6)-(8), Nov. 10, 1988, 102 Stat. 3442, provided that:
“(1) In general.--Except as otherwise provided in this section, the amendments made by this section [enacting this section] shall apply to taxable years ending after December 31, 1986, with respect to dispositions after February 28, 1986.
“(2) Exception for certain sales of property by a manufacturer to a dealer.--
“(A) In general.--The amendments made by this section shall not apply to any installment obligation arising from the disposition of tangible personal property by a manufacturer (or any affiliate) to a dealer if--
“(i) the dealer is obligated to pay on such obligation only when the dealer resells (or rents) the property,
“(ii) the manufacturer has the right to repurchase the property at a fixed (or ascertainable) price after no later than the 9-month period beginning with the date of the sale, and
“(iii) such disposition is in a taxable year with respect to which the requirements of subparagraph (B) are met.
“(B) Receivables must be at least 50 percent of total sales.--
“(i) In general.--The requirements of this subparagraph are met with respect to any taxable year if for such taxable year and the preceding taxable year the aggregate face amount of installment obligations described in subparagraph (A) is at least 50 percent of the total sales to dealers giving rise to such obligations.
“(ii) Taxpayer must fail for 2 consecutive years.--A taxpayer shall be treated as failing to meet the requirements of clause (i) only if the taxpayer fails to meet the 50-percent test for both the taxable year and the preceding taxable year.
“(C) Transition rule.--An obligation issued before the date of the enactment of this Act [Oct. 22, 1986] shall be treated as described in subparagraph (A) if, within 60 days after such date, the taxpayer modifies the terms of such obligation to conform to the requirements of subparagraph (A).
“(D) Application with other obligations.--In applying section 453C of the Internal Revenue Code of 1986 to any installment obligations to which the amendments made by this section apply, obligations described in subparagraph (A) shall not be treated as applicable installment obligations (within the meaning of section 453C(e)(1) of such Code).
“(E) Other requirements.--This paragraph shall apply only if the taxpayer meets the requirements of subparagraphs (A) and (B) for its first taxable year beginning after the date of the enactment of this Act.
“(3) Exception for certain obligations.--In applying the amendments made by this section to any installment obligation of a corporation incorporated on January 13, 1928, the following indebtedness shall not be taken into account in determining the allocable installment indebtedness of such corporation under section 453C of the Internal Revenue Code of 1986 (as added by this section):
“(A) 12-5/8 percent subordinated debentures with a total face amount of $175,000,000 issued pursuant to a trust indenture dated as of September 1, 1985.
“(B) A revolving credit term loan in the maximum amount of $130,000,000 made pursuant to a revolving credit and security agreement dated as of September 6, 1985, payable in various stages with final payment due on August 31, 1992.
This paragraph shall also apply to indebtedness which replaces indebtedness described in this paragraph if such indebtedness does not exceed the amount and maturity of the indebtedness it replaces.
“(4) Special rule for residential condominium project.--For purposes of applying the amendments made by this section, the term applicable installment obligation (within the meaning of section 453C(e)(1) of the Internal Revenue Code of 1986) shall not include any obligation arising in connection with sales from a residential condominium project--
“(A) for which a contract to purchase land for the project was entered into at least 5 years before the date of the enactment of this Act,
“(B) with respect to which land for the project was purchased before September 26, 1985,
“(C) with respect to which building permits for the project were obtained, and construction commenced, before September 26, 1985,
“(D) in conjunction with which not less than 80 units of low-income housing are deeded to a tax-exempt organization designated by a local government, and
“(E) with respect to which at least $1,000,000 of expenses were incurred before September 26, 1985.
“(5) Special rule for qualified buyout.--The amendments made by this section shall apply for taxable years ending after December 31, 1991, to a corporation if--
“(A) such corporation was incorporated on May 25, 1984, for the purpose of acquiring all of the stock of another corporation,
“(B) such acquisition took place on October 23, 1984,
“(C) in connection with such acquisition, the corporation incurred indebtedness of approximately $151,000,000, and
“(D) substantially all of the stock of the corporation is owned directly or indirectly by employees of the corporation the stock of which was acquired on October 23, 1984.
“(6) Special rule for sales of real property by dealers.--In the case of installment obligations arising from the sale of real property in the ordinary course of the trade or business of the taxpayer, any gain attributable to allocable installment indebtedness allocated to any such installment obligations which arise (or are deemed to arise)--
“(A) in the 1st taxable year of the taxpayer ending after December 31, 1986, shall be taken into account ratably over the 3 taxable years beginning with such 1st taxable year, and
“(B) in the 2nd taxable year of the taxpayer ending after December 31, 1986, shall be taken into account ratably over the 2 taxable years beginning with such 2nd taxable year.
“(7) Special rule for sales of personal property by dealers.--In the case of installment obligations arising from the sale of personal property in the ordinary course of the trade or business of the taxpayer, solely for purposes of determining the time for payment of tax and interest payable with respect to such tax--
“(A) any increase in tax imposed by chapter 1 of the Internal Revenue Code of 1986 for the 1st taxable year of the taxpayer ending after December 31, 1986, by reason of the amendments made by this section shall be treated as imposed ratably over the 3 taxable years beginning with such 1st taxable year, and
“(B) any increase in tax imposed by such chapter 1 for the 2nd taxable year of the taxpayer ending after December 31, 1986 (determined without regard to subparagraph (A)), by reason of the amendments made by this section shall be treated as imposed ratably over the 2 taxable years beginning with such 2nd taxable year.
“(8) Treatment of certain installment obligations.--Notwithstanding the amendments made by subtitle B of title III [section 311 of Pub. L. 99-514, amending sections 593, 631, 852, 1201, and 1445 of this title and enacting provisions set out as notes under sections 631 and 1201 of this title], gain with respect to installment payments received pursuant to notes issued in accordance with a note agreement dated as of August 29, 1980, where--
“(A) such note agreement was executed pursuant to an agreement of purchase and sale dated April 25, 1980,
“(B) more than 1/2 of the installment payments of the aggregate principal of such notes have been received by August 29, 1986, and
“(C) the last installment payment of the principal of such notes is due August 29, 1989, shall be taxed at a rate of 28 percent.
“(9) Special rules.--For purposes of section 453C of the 1986 Code (as added by subsection (a))--
“(A) Revolving credit plans, etc.--The term ‘applicable installment obligation’ shall not include any obligation arising out of any disposition or sale described in paragraph (1) or (2) of section 453(k) of such Code (as added by section 812(a)).
“(B) Certain dispositions deemed made on first day of taxable year.--In the case of a taxpayer's 1st taxable year ending after December 31, 1986, dispositions after February 28, 1986, and before the 1st day of such taxable year shall be treated as made on such 1st day.”