Question: Jackie and Lina are S corporation shareholders. Lina left the S corporation when Jackie bought out her stock. Lina provided seller financing over five years to Jackie. Lina heard that tax rates are increasing in the following tax year and is interested in reporting all the gain on the stock sale in the year sold. Is Lina required to report the sale of stock on Form 6252, Installment Sale Income?
Answer: No, Lina is not required to report the stock sale on Form 6252 if the election is made to opt out of using the installment method. While generally receiving one payment in a tax year after the year of sale requires the installment method of reporting, using the election to forego it allows Lina to accelerate income tax gain recognition in the year of sale. To make the election, Lina reports 100% of the gain in income in the year of the stock sale on the timely filed tax return, including extensions. Do not use Form 6252 to elect out. Failure to timely elect out with reasonable cause is approved on a case-by-case basis by IRS authority. A change in tax law, such as increased income tax rates, is not considered reasonable cause by IRS.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.