All Forum Posts by: Mack Fleming

This is not about Dealer status.

The fact that Congress decided back in 1986-7, to disallow Dealers to use Installment Method of accounting is what I can't seem to make sense of at all. In doing so, they effectively took the option of Seller Financing off the table for Dealers. And, I have not found where it has ever been challenged since. We have just accepted it and plodded on.

As I mentioned earlier, this is illogical and unfair. It appears to me that something else is at work here. Perhaps it's an attempt by the folks in the lending institutions to exclude private lending. Just a thought.

Do mean 'sell it' for cash instead of financing it myself?

I am not sure I follow. The IRS is getting everything that is due them by the Installment Method of accounting.

Why do we let the IRS do this? Has anyone at least questioned the IRS as to how they can justify forcing us to pay tax on money we have never received?

There is no way I can see that this makes any sense. It makes me wonder if there is something else at work here.

I bought about 140 acres of river front land. Sold about half over the first couple of years. The part that is left I planned to divide into smaller lots.

The funds for the purchase came, in part, from a private loan.

This concept is not fair, and simply doesn't make sense.

I have read of court cases the challenged the issue of Dealer status vs. Investor status. But, I am not aware of any cases that challenged the notion of the IRS taxing unrealized gains. If challenged, I can not think of how they might argue their case. Can someone out there tell me how how taxing unrealized gains is fair, or at least somehow logical?

I have 50-60 residential lots that I plan to sell over the next few years, most of which I prefer to owner finance rather than cash sales. So, I have got to figure out how to structure this business before I make a mess of it and possibly get myself mired with the IRS. Any suggestions appreciated.

Thanks,
Mack

The IRS does not allow real property Dealers to use the Installment Plan method of accounting. This means that if the Dealer does an Owner Financed sell, he/she is responsible for the tax liability for the entire paper profit, all due in the tax year of sale. This is not fair.

One of the only exceptions I have found is: (1) The Dealer is engaged in selling unimproved residential lots. (2) He/she must pay a special tax on the deferred tax liability. Again, the Dealer is responsible for the tax liability for entire paper profit. The only difference here is if it is not paid to the IRS in the tax year of sale, then interest must be paid to the IRS on the amount of the tax liability. This is not fair.

Assuming I am correct in my understanding, I would like to know what others think of this.

Thank you,
Mack