Shannon D. Mullins - Page 11

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          S corporation during the year.  Since petitioner held his shares            
          of Edgington Mullins stock as a capital asset, any gain or loss             
          from the sale of the shares will be characterized as a capital              
          gain or loss.  See sec. 1221.                                               
               A taxpayer must generally recognize the entire amount of the           
          realized gain or loss.  Sec. 1001(c).  However, where there was             
          an “installment sale”, a taxpayer can use the installment method            
          to defer recognition of income.4  See sec. 453.  An installment             
          sale is 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”.  Sec. 453(b)(1).  Under the installment                
          method, a taxpayer recognizes a proportion of the payment                   
          received in any given year commensurate with the percentage that            
          the gross profit bears to the total contract price.  Sec. 453(c);           
          Raymond v. Commissioner, T.C. Memo. 2001-96.                                
               As discussed herein, petitioner sold his shares of Edgington           
          Mullins stock on October 26, 2001, for a total of $40,000.5                 
          Petitioner’s adjusted basis in his shares of Edgington Mullins              

               4  Generally, income from an installment sale is determined            
          under the installment method unless a taxpayer elects out of the            
          installment method.  Sec. 453(d).                                           
               5  The total sales price was later reduced in taxable year             
          2002 to $28,000 when petitioner agreed to accept a payment of               
          $20,000 for the $32,000 still owed him under the stock purchase             

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Last modified: May 25, 2011