Monetized Installment Arrangements: Tax Deferral, IRS Scrutiny and What You Need to Know
What This Video Covers
A monetized installment sale — sometimes called a monetized installment arrangement — is a transaction structure that combines an installment sale under Internal Revenue Code § 453 with a separate loan, allowing the seller to receive cash proceeds at closing while deferring recognition of gain over the installment period. When properly structured and supported by genuine economic substance, the arrangement can produce a significant timing advantage on the tax owed from a sale of appreciated property.
Key topics addressed include:
- How installment sales under IRC § 453 work and why they are used
- The structure of a monetized installment arrangement — the installment note, the intermediary and the loan
- Economic substance doctrine and why it is central to the IRS’s challenge of these transactions
- IRS Notice 2023-63: transaction of interest designation and its disclosure obligations
- Penalty exposure for failure to disclose, including the IRC § 6707A penalty regime
- Who is most affected: real estate sellers, business owners, capital gains from asset sales
- What to do if you have already completed a monetized installment sale
- Defensive planning considerations for future transactions
Why This Matters
For years, monetized installment sales occupied a gray area. Promoters marketed them aggressively — particularly to real estate investors, business owners selling appreciated assets, and anyone facing a large capital gains event — as a way to “defer taxes indefinitely” while still receiving full sale proceeds upfront.
The IRS has made its position clear: it views many of these arrangements as lacking economic substance, and it is pursuing them accordingly. The transaction of interest designation means that material advisors must maintain client lists, taxpayers must attach disclosure statements to their returns, and the IRS has essentially flagged these transactions for systematic review.
About the Presenter
Benjamin A. Goldburd, Esq.
Goldburd McCone LLP
Benjamin brings focused experience in IRS collection defense, including lien and levy disputes, CDP hearings and negotiated resolutions. Our team’s combined backgrounds in accounting, business and wealth management ensure that enforcement responses account for the full scope of a client’s financial position.
Frequently Asked Questions About Installments
What exactly is a monetized installment sale?
At its core, it is a two-part structure. First, a seller sells appreciated property to a buyer (or intermediary) in exchange for an installment note — spreading the payments, and therefore gaining recognition, over a number of years under IRC § 453. Second, the seller borrows against that installment note from a lender — typically receiving a lump sum that approximates the full sale price. The theory is that the installment sale defers the tax, and the loan provides liquidity without triggering a taxable event (because loan proceeds are generally not income).
Is a monetized installment sale illegal?
Not per se. Installment sales under § 453 are legitimate and widely used. Borrowing money is not a taxable event. The legal question is whether the specific arrangement has genuine economic substance — whether the installment obligation carries real risk, whether the terms of the loan are commercially reasonable, and whether the structure serves any purpose beyond tax avoidance. The IRS has not declared all monetized installment sales to be tax shelters, but it has classified them as a “transaction of interest,” which is one step below a “listed transaction” on the IRS’s spectrum of concern.
Are there legitimate alternatives for deferring capital gains on a property sale?
Yes — several. A standard installment sale under § 453 (without monetization) remains a well-established and defensible deferral strategy. Like-kind exchanges under § 1031 can defer gain on qualifying real property transactions. Opportunity zone investments under § 1400Z can provide both deferral and, in some cases, partial exclusion. Charitable remainder trusts may be appropriate for philanthropically inclined sellers. Each of these tools has its own requirements, limitations and suitability considerations. The right choice depends on the type of asset being sold, the seller’s broader financial picture and the desired timeline for recognizing gain.