Inerited installment sale income

[Kram BergGold]

I am assuming, when a taxpayer inherits a stream of income from an installment sale, that the taxpayer just steps into the shoes of the decedent and continues reporting the principal times the original gross profit percentage and the interest just as the decedent had been doing, correct?

[Jiggers]

Yes. You are correct.

[Gene V]

Correct as Jiggers stated---See Pub. 559 page 9

[ChEAr$]

Also be aware that the character of the income doesn't change, i.e. ordinary or capital.

[Roberts]

I am assuming, when a taxpayer inherits a stream of income from an installment sale, that the taxpayer just steps into the shoes of the decedent and continues reporting the principal times the original gross profit percentage and the interest just as the decedent had been doing, correct?

Here's an interesting one. Same sort of situation except the decedent left absolutely NOTHING for us to work off of to determine the share of profit in the installment agreement.

My client inherited what is basically an installment agreement that was entered into years ago. My client was told he had inherited this only after the probate court kicked out the decedents last 5 wills as being voided. I have nothing at all to work off of and the attorney doesn't know a thing. All the attorney knows is that there is a string of payments coming from this lady for the next 4 years (plus a lump sum for the previous 18 payments) and the lady isn't telling any of us what it's in relation to. We think it's in relation to a house but we don't have a cost basis, the sale price or even the address of the house. 99% sure the deceased wasn't paying taxes on the installment sale. This guy was giving away crap, selling things for next to nothing and promising everyone everything the last 5 years of his life - all undocumented except this installment agreement.

[ChEAr$]

Here's an interesting one. Same sort of situation except the decedent left absolutely NOTHING for us to work off of to determine the share of profit in the installment agreement.

My client inherited what is basically an installment agreement that was entered into years ago. My client was told he had inherited this only after the probate court kicked out the decedents last 5 wills as being voided. I have nothing at all to work off of and the attorney doesn't know a thing. All the attorney knows is that there is a string of payments coming from this lady for the next 4 years (plus a lump sum for the previous 18 payments) and the lady isn't telling any of us what it's in relation to. We think it's in relation to a house but we don't have a cost basis, the sale price or even the address of the house. 99% sure the deceased wasn't paying taxes on the installment sale. This guy was giving away crap, selling things for next to nothing and promising everyone everything the last 5 years of his life - all undocumented except this installment agreement.

You say that "all attorney knows is .. string of payments.... " , so how does this signify it was an installment sale?
Even if you did know it was an installment sale years ago, you wouldn't have any basis in it, thus 100% taxable.
And since the payer isn't telling, it sounds like some kind of payments out of the ordinary, maybe damages of some sort?
Without knowing, is there any reason to consider it income?

[Roberts]

You say that "all attorney knows is .. string of payments.... " , so how does this signify it was an installment sale?
Even if you did know it was an installment sale years ago, you wouldn't have any basis in it, thus 100% taxable.
And since the payer isn't telling, it sounds like some kind of payments out of the ordinary, maybe damages of some sort?
Without knowing, is there any reason to consider it income?

No, the old guy was an ex-policeman, no family or close friends and in the final years of his life was promising anyone that would listen a share of his estate if they would help him.

From what I was told, it's a string of payments that will continue for 4 more years. I have no idea when it started or what it was tied to. The payer isn't talking to us because we don't know who they are. They are making payments to the attorney and the attorney will eventually pay the client. The probate court should have an idea what this is linked to - maybe the client can get a copy of their report.

Since nothing has been paid to them yet, shouldn't be relevant to the 2012 tax return anyway. I believe they'll get the lump sum collection over the last 18 months in a few weeks.

[taxea]

Once the seller/loaner dies the beneficiary has the right to demand payment in full. It is not required that the beneficiary retain the installment agreement..

[BOB W]

It is possible that there was no profit to be reported. Periodic payments does not mean installment reporting is required, but there should be interest, stated or unstated.

Like all "don't know" all the facts, IRS says it is ALL Taxable.

Get to the attorney ASAP and grill him. If the Attorney is collecting the funds he must know where it is coming from, if he was involved in the transaction.

[WhiteOleander]

Once the seller/loaner dies the beneficiary has the right to demand payment in full. It is not required that the beneficiary retain the installment agreement..

Please provide a cite for this.

[JohnH]

Once the seller/loaner dies the beneficiary has the right to demand payment in full. It is not required that the beneficiary retain the installment agreement..

Is that tax law or contract law you're misrepresenting? (or both?)

[taxea]

John H. Must you be so pestimistic? What makes you so absolutely sure that I am not correct? Would you like me to change my post to include it is very posssible that? It is the way things are done in my State...perhaps it is a state law, or probate or any one of a number of laws. I didn't say it was tax law.

[JohnH]

The pessimists' creed:

"No matter how pessimistic I become, I just can't seem to keep up with reality."

[WhiteOleander]

John H. Must you be so pestimistic? What makes you so absolutely sure that I am not correct? Would you like me to change my post to include it is very posssible that? It is the way things are done in my State...perhaps it is a state law, or probate or any one of a number of laws. I didn't say it was tax law.

I ask again for a cite.

[Roberts]

I ask again for a cite.

If the receiver dies, wow that could be a massive financial burden if an installment agreement was stretched over many years. That seems overly burdensome especially since the payer probably couldn't afford to get a loan any other way to begin with. I have my doubts on that one and it certainly isn't tax law.

My opinion was that on this case we would AT LEAST report imputed interest. I'll have to meet with the attorney I guess and demand some information. My sister-in-law has been talking with him but that's not going to cut it.