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Understanding Our Installment Strategy
What is an SIS?
One of our Installment Strategies utilizes a Structured Installment Sale (“SIS”) to defer Capital Gains tax utilizing Internal Revenue Code 453 which allows you to delay paying taxes when you sell certain types of assets. A SIS utilizes a non-qualified assignment that is designed for an installment sale of property to transfer the periodic payment obligations of the buyer to an assignment company where the seller/annuitant will receive at least one payment after the tax year in which the sale occurs. This is for property sales that are eligible for the Installment Method under Internal Revenue Code Section 453.
Properties that are eligible under IRC 453
- Sale of a Residence
- Sale of Investment Property
- Sale of a Business (sole proprietorship, partnership, LLC, sub-Chapter S Corporation
- Sale of closely held stock
- Sale of art and collectibles
Properties that are NOT eligible under IRC 453
- Disposition of inventory of a business
- Dealer disposition of real and personal property with certain exceptions as provided in IRC Section 453
- Disposition of stock and securities traded on an established market
- Portion of the gain attributable to depreciation recapture taken on real or personal property
- Disposition of depreciable property between related persons with certain exceptions as provided in IRC Section 453
We recommend that you and your clients always consult your independent tax advisors to review eligibility under IRC 453.
How does a structured installment sale work?
- Buyer and Seller execute Purchase and Sale Agreement with Addendum agreeing to periodic payments and the
- Buyer assigns the periodic payment obligation to MetLife Assignment Company, Inc. (MACI) and transfers the lump sum purchase price to MACI.
- MACI uses the lump, paid by the Buyer, to purchase an annuity contract matching the acquired periodic payment obligation on the sale.
- Metropolitan Tower Life Insurance Company (Met Tower Life) issues an annuity contract benefiting the Seller
- Met Tower Life distributes periodic payments to Seller according to the annuity contract.
At the time of the issuance of the Met Tower Life annuity, the seller/annuitant elects that, should they die before the annuity is fully paid out, the beneficiaries are to receive either the balance of the annuity payments or the present value lump sum equivalent.
What are the advantages of a structured installment sale?
• Defer and potentially lower your client’s tax rate by breaking up the gain they receive from one year to several years. May also reduce associated net investment income taxes1
• Confidence that the installment sale income will be paid by a financially strong, highly rated third party like Metropolitan Tower Life Insurance Company2,3
Does the IRS charge interest on the deferred tax liability?
In general, if your seller’s installment sale obligations (i.e. payments that you are owed) are greater than $5M per person utilizing IRC 453 for the deferral of Capital Gains tax, the IRS imposes an interest charge. Please refer to IRC Section 453A(a)(1). Exceptions to this rule include:
- Personal use property and
- Trade or business, related to farming
We recommend that you and your client always consult your independent tax advisors to review IRC 453.
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