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subsequent collection of those receivables by Woodbine has, to a
substantial extent, provided the wherewithal for the payments on
the Woodbine Association Certificates of Indebtedness held by the
Kunkowskis and on the Kunkowskis' note to Alice Berger.
Issue 5(c). Installment Method
The gain or loss realized by the seller of property usually
must be recognized at the time of sale. However, the seller who
is eligible to use the installment method may defer recognition
of gain, and the liability to pay tax thereon, over the period of
and in proportion to the payments as they are made. Sec. 453(c).
Under the installment method, the seller is able to recognize
gain over the period during which the installment payments are
18(...continued)
part of Alice's gain, and their substantially higher face amount,
assuming that they were collected by the Cemetery Association in
due course over the following 2-year period, with few if any bad
debts, to escape tax entirely. Perhaps that difference, if the
receivables should be considered, along with the other Woodbine
assets, to have been transferred to the Kunkowskis, and re-
transferred by them to the Cemetery Association for its
Certificates of Indebtedness, should have been taxed to the
Kunkowskis if the receivables in fact had a value greater than
$172,298 on Nov. 17, 1989. If that difference should be so large
as to extend the period of limitations under sec. 6501(e) on the
Kunkowskis' 1989 return, respondent may still have time to
consider that possibility and determine whether the Kunkowskis
realized and recognized a substantial ordinary gain on their
constructive transfer to the Cemetery Association of the
previously undervalued Woodbine receivables from purchasers of
Phase II mausoleum crypts.
The transactions of Nov. 17, 1989, were structured for tax
purposes in such fashion that, as we shall see in the discussion
of issue 5(c), Alice Berger will be required to pay a substantial
current tax liability, even though she is receiving the $680,000
sale price in the form of monthly payments, with interest, over
25 years.
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