Installment sale/imputed interest

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Subject Author Date Installment sale/imputed interest Kevin 08-12-2009  Re: Installment sale/imputed interest Seth 08-12-2009  Re: Installment sale/imputed interest Mark Bole 08-13-2009  Re: Installment sale/imputed interest Kevin 08-13-2009  Re: Installment sale/imputed interest Mark Bole 08-13-2009  Re: Installment sale/imputed interest Kevin 08-14-2009  Re: Installment sale/imputed interest Seth 08-15-2009   Re: Installment sale/imputed interest Steve Pope 08-15-2009  Re: Installment sale/imputed interest Kevin 08-17-2009  Re: Installment sale/imputed interest Seth 08-18-2009  Re: Installment sale/imputed interest Kevin 08-18-2009  Re: Installment sale/imputed interest Stuart A. Bronstein 08-18-2009  Re: Installment sale/imputed interest Kevin 08-19-2009
Posted by Kevin on August 12, 2009, 12:53 pm Please log in for more thread options A couple months ago I posted about selling my business. Some of the money was put into an escrow account to cover expenses from a pending lawsuit against the company. I would get whatever was left when the suit was over. The income developed in the escrow account would be mine at the end unless it was eaten up in the lawsuit. I was responsible for declaring the income on my tax return as the income developed. My accountant said it was not an installment sale because the amount of the second payment was uncertain.. My lawyer said it was. You all said it was and installment sale. I met today with my lawyer and new accountant, and we all agree it was an installment sale. However.... Several people here said there was no imputed interest because I was getting the benefit of the escrow account's income. My lawyer and accountant disagree; they says there is always interest paid by the buyer to the seller on an escrow account. Unless it is stated, it is imputed. It makes absolutely no difference who gets the income on the escrow account. Did I misunderstand what I was told here? If not a reference would be appreciated. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Seth on August 12, 2009, 6:07 pm Please log in for more thread options >Several people here said there was no imputed interest because I was getting >the benefit of the escrow account's income. >My lawyer and accountant disagree; they says there is always interest paid >by the buyer to the seller on an escrow account. Interest is imputed when it isn't specifically paid. If I sell you a business for $2 million, paid in installments of $1 million after 1 and 2 years, then the IRS imputes interest as part of those payments. If you put the $2 million in a bank account, and I receive the interest on it, then I'm getting real actual interest and there's no reason to impute any. > Unless it is stated, it is imputed. But it _is_ stated: the bank pays it on the escrow account. > It makes absolutely no difference who gets the income on the >escrow account. Since you, the seller, get cash later, there must be interest included. Since you're getting the cash interest on the escrow account and paying taxes on that, that's your interest, right there. If the buyer kept the interest paid by the bank, some of the money you receive would be imputed interest. Seth -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mark Bole on August 13, 2009, 1:13 am Please log in for more thread options Kevin wrote: > The income developed in the escrow account > the income > on my tax return as the income developed. > the benefit of the escrow account's income. > My lawyer and accountant disagree; they says there is always interest paid >the income on the > escrow account. Is "the income [from] the escrow account" the same as "the interest paid on the escrow account by the escrow agent"? Is there some kind of income other than interest? -Mark Bole -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Kevin on August 13, 2009, 9:32 pm Please log in for more thread options > Kevin wrote: > >> The income developed in the escrow account the income on my tax return as >> the income developed. > >> the benefit of the escrow account's income. >> My lawyer and accountant disagree; they says there is always interest >> paid > >>the income on the escrow account. > > Is "the income [from] the escrow account" the same as "the interest paid > on the escrow account by the escrow agent"? Is there some kind of income > other than interest? > There are dividends, municiple box interest, capital gains (well, losses...), and a small amount of interest. Very little actual interest. Does that make a difference? -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mark Bole on August 13, 2009, 10:02 pm Please log in for more thread options Kevin wrote: >> Is "the income [from] the escrow account" the same as "the interest paid >> on the escrow account by the escrow agent"? Is there some kind of income >> other than interest? >> > There are dividends, municiple box interest, capital gains (well, > losses...), and a small amount of interest. > Very little actual interest. > > Does that make a difference? > In my opinion, yes. What you keep on calling an "escrow" account does not match the conventional meaning. I'm not sure what you have, but it doesn't sound to me like an installment sale, more like a double-or-nothing gamble. I suspect someone will elaborate or correct me if I'm wrong. -Mark Bole -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted interest on installment purchase of s-corp June 5, 2008, 11:24 pm Imputed interest on installment sales October 7, 2009, 3:15 pm Can mortgage interest paid to a foreign lender be considered portfolio interest (tax exempt)> March 10, 2007, 1:06 am Form 6251- Line 4 of Home Mortgage Interest Adjustment Worksheet, accounting method needed to determine a HELOC interest usages. 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