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On August 10, 1999, respondent issued petitioner a statutory
notice of deficiency for 1995 with the determination that
petitioner had unreported capital gain of $125,000.1 The notice
of deficiency stated that petitioner had elected out of the
installment method and did not qualify for the claimed exclusion.
Petitioner concedes that she did not live in the residence for
the 3 years as she claimed on her return and is therefore not
entitled to the exclusion. She argues that respondent’s
determination is in error because her election out of the
installment method was invalid.
As a general rule, taxpayers are required to use the
“installment method” with respect to any income from an
“installment sale”. Sec. 453(a). The installment method is a
method under which income is recognized in the year or years in
which payments are received. Sec. 453(c). An installment sale
generally is any sale in which at least one payment is to be
received after the close of the taxable year of the sale. Sec.
453(b)(1).
Taxpayers may elect out of the otherwise mandatory
installment method. Sec. 453(d)(1). Subject to exceptions not
applicable here, such an election must be made on or before the
due date (including extensions) for filing the taxpayer’s return
1All other adjustments in the notice of deficiency are
computational and will be resolved by the Court’s holding on the
issue in this case.
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Last modified: May 25, 2011