Amended 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 substituted “loss on disposition” for “loss disposition” in section catchline.
(a) General rule If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold, or otherwise disposed of, gain or loss shall result to the extent of the difference between the basis of the obligation and—
Cases: Principal Life Insurance v. United States, 70 Fed. Cl. 144 (Fed. Cl. 2006); Medlin v. Commissioner, T.C. Memo. 2003-224
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(1) the amount realized, in the case of satisfaction at other than face value or a sale or exchange, or
(2) the fair market value of the obligation at the time of distribution, transmission, or disposition, in the case of the distribution, transmission, or disposition otherwise than by sale or exchange.
any gain or loss so resulting shall be considered as resulting from the sale or exchange of the property in respect of which the installment obligation was received.
(b) Basis of obligation The basis of an installment obligation shall be the excess of the face value of the obligation over an amount equal to the income which would be returnable were the obligation satisfied in full.
(c) Special rule for transmission at death Except as provided in section 691 (relating to recipients of income in respect of decedents), this section shall not apply to the transmission of installment obligations at death.
(d) Exception for distributions to which section 337(a) applies Subsection (a) shall not apply to any distribution to which section 337(a) applies.
Amended 1980, 1983, 1984, 1986, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508 substituted heading for one which read: “Effect of distribution in liquidations to which section 332 applies” and amended text generally. Prior to amendment, text read as follows: “If—
“(1) an installment obligation is distributed in a liquidation to which section 332 (relating to complete liquidations of subsidiaries) applies, and
“(2) the basis of such obligation in the hands of the distributee is determined under section 334(b)(1),
then no gain or loss with respect to the distribution of such obligation shall be recognized by the distributing corporation.”
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 631(e)(9), amended subsec. (d) generally, substituting “liquidations to which section 332 applies” for “certain liquidations” in heading, striking out par. (1) designation, redesignating subpars. (A) and (B) as pars. (1) and (2), and striking out former par. (2) relating to liquidations to which section 337 applies.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 492(b)(3), struck out “1251(c),” after “1250(a),” in provision following subpar. (B).
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 43(c)(2), substituted “1254(a), or 1276(a)” for “or 1254(a)”.
- 1983 Pub. L. 97-448 Pub. L. 97–448 substituted “under subsection (a)” for “under paragraph (1)” in second sentence.
- 1980 Pub. L. 96-471 Pub. L. 96–471, § 2(c)(3), inserted last sentence providing that in the case of any installment obligation which would have met the requirements of subpars. (A) and (B) of par. (2) but for sections 337(f), gain shall be recognized to such corporation by reason of such distribution only to the extent gain would have been recognized under sections 337(f) if such corporation had sold or exchanged such installment obligation on the date of such distribution.
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(e) Life insurance companies
(1) In general In the case of a disposition of an installment obligation by any person other than a life insurance company (as defined in section 816(a)) to such an insurance company or to a partnership of which such an insurance company is a partner, no provision of this subtitle providing for the nonrecognition of gain shall apply with respect to any gain resulting under subsection (a). If a corporation which is a life insurance company for the taxable year was (for the preceding taxable year) a corporation which was not a life insurance company, such corporation shall, for purposes of this subsection and subsection (a), be treated as having transferred to a life insurance company, on the last day of the preceding taxable year, all installment obligations which it held on such last day. A partnership of which a life insurance company becomes a partner shall, for purposes of this subsection and subsection (a), be treated as having transferred to a life insurance company, on the last day of the preceding taxable year of such partnership, all installment obligations which it holds at the time such insurance company becomes a partner.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 211(b)(6)(A), substituted “section 816(a)” for “section 801(a)”.
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(2) Special rule where life insurance company elects to treat income as not related to insurance business Paragraph (1) shall not apply to any transfer or deemed transfer of an installment obligation if the life insurance company elects (at such time and in such manner as the Secretary may by regulations prescribe) to determine its life insurance company taxable income—
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 211(b)(6)(B), substituted “as not related to insurance business” for “as investment income” in heading, and in text substituted “as if such income were an item attributable to a noninsurance business (as defined in section 806(c)(3))” for “if such income would not otherwise be returnable as an item referred to in section 804(b) or as long-term capital gain, as if the income on such obligations were income specified in section 804(b)”.
(A) by returning the income on such installment obligation under the installment method prescribed in section 453, and
(B) as if such income were an item attributable to a noninsurance business.
Amended 1986, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(1)(A), struck out “(as defined in section 806(b)(3))” before period at end.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1011(b)(1), substituted “section 806(b)(3)” for “section 806(c)(3)”.
(3) Noninsurance business
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13512(b)(1)(B), added par. (3).
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(A) In general For purposes of this subsection, the term “noninsurance business” means any activity which is not an insurance business.
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(B) Certain activities treated as insurance businesses For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if—
(i) it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or
(ii) it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.
(f) Obligation becomes unenforceable For purposes of this section, if any installment obligation is canceled or otherwise becomes unenforceable—
(1) the obligation shall be treated as if it were disposed of in a transaction other than a sale or exchange, and
(2) if the obligor and obligee are related persons (within the meaning of section 453(f)(1)), the fair market value of the obligation shall be treated as not less than its face amount.
(g) Transfers between spouses or incident to divorce In the case of any transfer described in subsection (a) of section 1041 (other than a transfer in trust)—
Amended 1984, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1842(c), inserted “(other than a transfer in trust)”.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 421(b)(3), added subsec. (g).
(1) subsection (a) of this section shall not apply, and
(2) the same tax treatment with respect to the transferred installment obligation shall apply to the transferee as would have applied to the transferor.
(h) Certain liquidating distributions by S corporations If—
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647 added subsec. (h).
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(1) an installment obligation is distributed by an S corporation in a complete liquidation, and
(2) receipt of the obligation is not treated as payment for the stock by reason of section 453(h)(1),
then, except for purposes of any tax imposed by subchapter S, no gain or loss with respect to the distribution of the obligation shall be recognized by the distributing corporation. Under regulations prescribed by the Secretary, the character of the gain or loss to the shareholder shall be determined in accordance with the principles of section 1366(b).