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IRS Rulings and Case Law in Support of the Structured Sale

IRS rulings in support of structured sale

Why Structured Sale Works

In the past, there was confusion between Structured Sale and a technique called the Private Annuity Trust (PAT)  which was disallowed by an IRS ruling in October of 2006.

To be clear:  Structured Sale is an installment sale.  The funding mechanism is a funding agreement (annuity) issued by a life insurance company.  It is not, nor was it ever, a PAT. 

Here are some mechanics that make the Structured Sale work.

  • Seller sells the asset to the buyer in an installment sale agreement.  This allows the seller to pay tax as payments are received pay IRC 453. 
  • Just as in a traditional installment sale, the buyer is liable for the installment sale payments to the seller.
  • In a Structured Sale, the buyer assigns his liability over to an assignment company backed by a high credit quality life insurance company. This removes the buyer’s liability to make future installment payments.
  • The assignment company, which is now liable for the installment payments, purchases a funding agreement (or annuity) to fund the sellers installment sale payments.
  • Seller receives payments directly from the insurance company (as a convenience to the assignor) and names his or her own beneficiary of the periodic payments; however, the assignment company (backed by annuity issuer) owns the funding agreement (annuity.)

The Structured Sale (Ensured Installment Sale) follows the solid tax principles and is a valid alternative to a 1031 exchange or traditional installment sale. Below you can see the actual IRS rulings and case law that support the Structured Sale. If you have any further questions, please call us at 1-800-666-5584.  

IRS Rulings and Case Law in Support of the Structured Sale (Ensured Installment Sale) Components

  • Ruling allowing disposition of real property by Installment Sales - IRC 453
  • Ruling allowing substitution of obligors - Revenue Ruling 75-457, Revenue Ruling 82-122, Wynne v. Commissioner, 47 B.T.Z. 731 (1942), Cunningham v. Commissioner, 44 T.C. 103 (1965), acq., 1966-2 C.B.4
  • Ruling showing constructive receipt is avoided - Treas. Reg. 1.451-2(a), Commissioner v. Tyler, 28 B.T.Z. 367 (1933)

It is true that the IRS disallowed the exchange of an asset for an annuity stream; however, as you can see from the information above, the Structured Sale is not an exchange of an asset for an annuity stream. A Structured Sale is the sale of an asset by installment sale whereby the seller collects the installment payments from a fixed annuity.

Top Tax Attorney Opinion on the Structured Sale

 

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