5.23 Electing Not To Report on the Installment Method

If any sale proceeds are to be received after the year of sale, you must file Form 6252 and use the installment method unless you “elect out” by making a timely election to report the entire gain in the year of sale. If you want to report the entire gain in the year of sale, do not file Form 6252. Include the entire gain on Form 8949 or Form 4797 by the due date for filing your return (plus extensions) for the year of sale. If you timely file your return without making the election, you can do so on an amended return filed no later than six months after the original due date (without extensions); write “Filed pursuant to section 301.9100-2” at the top of the amended return.

Switching from full reporting to installment method.

If you “elect out” of the installment method by reporting the entire gain in the year of sale, you may change to the installment method on an amended return only with the consent of the IRS. In private rulings, the IRS has granted permission to revoke an election out that was inadvertent, such as where the taxpayer’s accountant was instructed to use the installment method but the accountant mistakenly reported the entire gain in the year of sale. If the IRS is not convinced that the election out was inadvertent, it will likely refuse permission to retroactively allow the change to the installment method, on the grounds that a revocation of the election would involve hindsight and result in tax avoidance.

In one case, a seller “elected out” in a year in which he planned to deduct a net operating loss carryforward from an installment sale gain. In a later year, the IRS substantially reduced the loss. The seller then asked the IRS to allow him to revoke the “election out” so he could use the installment method. The IRS refused in a private ruling, claiming that the seller asked for the revocation to avoid tax. The installment sale would defer gain to a later year, which is a tax avoidance purpose.