John T. Barrett, Jr. and Jane W. A. Barrett - Page 12

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          respect to the sale of the shares by increasing the basis claimed           
          for the shares from $45,000 to $116,528.  Petitioners                       
          subsequently filed an amendment to the amended return claiming a            
          basis of $116,504 for the shares.                                           
                                       OPINION                                        
               The first issue we must decide is whether petitioners, for             
          taxable year 1989, must recognize a capital gain2 pursuant to the           
          installment sale provisions of section 453 on the disposition of            
          the shares.  As a general matter, an installment sale is a                  
          disposition of property where one payment is to be received after           
          the close of the year in which the disposition occurs.  Sec.                
          453(b)(1).3  Income from an installment sale is to be taken into            
          account using the installment method, unless a taxpayer elects              
          not to have the method apply.  Sec. 453(a), (d).  The installment           
          method requires gain from the disposition to be recognized for              
          payments received in a taxable year in the same proportion that             
          the gross profit (realized or to be realized when payment is                
          completed) bears to the total contract price.  Sec. 453(c).                 


          2                                                                           
               Respondent does not contest petitioners' characterization of           
          their gain as capital gain.                                                 
          3                                                                           
               Sec. 453(b)(1) provides:                                               
               (1) In general.--The term “installment sale” means a                   
               disposition of property where at least 1 payment is to                 
               be received after the close of the taxable year in                     
               which the disposition occurs.                                          




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