Structured Sale

[Gene V]

Has anyone done a Structured Sale?
If so, would appreciate any information.

Information on a Structured Sale:

In a structured sale, the seller gets a guaranteed payment stream from an assignment company, (NABCO in Barbado) and Allstate life insurance co., without serious risk of either nonpayment or acceleration.

A structured sale is eligible for installment sale reporting, and the assignment by the buyer is not a disposition.

Have a client that is interested in doing a structured sale on his rental property.

[Roland Slugg]

Unclear ... to me

Dear Gene V

The term "Structured Sale" is somewhat generic and has no fixed meaning that everyone would agree upon. Also, the term is not used in the tax law ... at least I have never seen it.

Your facts were not especially clear to me, but if your client's prospective sale is, essentially, an installment sale, it's reportable as such for tax purposes. If the seller disposes of the installment note concurrent with or subsequent to the sale, that will trigger recognition of the remaining gain.

[Gene V]

Installment sales

Roland,
I’m just learning about this installment sales call Structured Sale, I understand the structured sale concept was introduced in the mid-2005.

A little more information on the Structured Sale.

Benefits of a Structured Sale

*No direct relationship between the Buyer and Seller for the assigned periodic payment obligation.

*Security-The Seller is not directly dependent on the solvency or financial performance of the Buyer

*The Buyer assigns the obligation to an Assignment Company to make periodic payments ((Revenue Rulings 75-457 and 82-122 and Tax Court decisions in Wynne v. Commissioner (47B.T.A. 731 (1942), nonacq. 1943 C.B.42) and Cunningham v. Commissioner (44 T.C. 103 (1965), acq. 1966-2 C.B.4) for substituting obligors.))

*An Assignment Company funds the payment liability by purchasing an annuity from Allstate Life

*In the event the Assignment Company fails to make payments, ALIC shall make the scheduled annuity payments to Seller pursuant to the Agreement to Pay.

You might search the web for an article by Robert W. Wood, J.D. (The Advantages of Selling Appreciated Assets via a Structured Sale) and
Structured Sales: Breathing Life Into Installment Sales, also by Robert Wood

Remember, I got my EA 23 years ago, but been working for the airlines for 34 years as a CSA (Customer Service Agent)—so I’m still learning-go easy on me.

[jainen]

into the future

>>the term is not used in the tax law <<

That is one of the great risks in a structured settlement. It is a new idea and you never know how the IRS or courts will treat it. It appears to be an installment sale except the seller has no security--he can not foreclose because the buyer has assigned all his obligations to a third party. The third party happens to be in Barbados, a great place if you want to avoid the IRS or other U.S entanglements like courts. Supposedly payments are "guaranteed" by an annuity.

Since the seller has to agree to let the buyer pay the assignment company, it is quite conceivable that the IRS will call it constructive receipt and tax the whole amount anyway. Proponents of course have their arguments and court cases lined up, but in fact there are no cases with this kind of transaction yet. It reminds me of the Starker family of Oregon who invented the delayed 1031 exchange. They were in litigation for more than a decade, and when the IRS finally issued new regs, the safe harbor didn't look much like the original Starker exchange.

Still, if the idea works it should be useful when a buyer refuses to enter into an installment agreement or when the seller is unsure the buyer has staying power. No defaults, no early payoffs, no trouble at all. For perspective, remember that the idea came from lawsuits in which the two parties don't get along and are better off not stretching their relationship into the future.