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Monetized Installment Sale: How It Works, Why the IRS Objects

By Hans Goldstein · Updated 2026-09-27

A monetized installment sale is a pitch to defer the tax on a sale while getting most of the cash on day one: you sell to an intermediary for a long-term note, the intermediary resells to your real buyer for cash, and a lender "loans" you most of that cash. The IRS has proposed making these deals listed transactions (Prop. Reg. §1.6011-13, proposed August 4, 2023 and still not final as of September 2026), and it has said it will argue in litigation that sellers are not entitled to the deferral. The short version: if you get the cash on day one, you have a hard time saying you deferred anything.

This page describes the arrangement, the IRS's stated reasons for targeting it, the disclosure and penalty exposure, and how it differs from ordinary seller financing and from a structured installment sale.

The pitch: a note, a loan, and deferral

The steps, as the proposed regulation itself describes them (Prop. Reg. §1.6011-13(b), 88 FR 51756, 51762-63 (Aug. 4, 2023)):

1. The seller, or someone acting for the seller, identifies a buyer willing to pay cash.
2. The seller agrees to sell the property to a person other than the buyer (the intermediary) for an installment obligation.
3. The intermediary never takes title, or takes it only briefly.
4. The intermediary sells the property to the buyer for cash.
5. The seller obtains a loan. Interest on the installment note matches interest on the loan, both are interest-only over the same period, and principal on both is due in a balloon at or near the end.
6. The buyer's cash, less fees and an amount set aside to fund the note's interest, goes to the lender to fund the seller's loan, or into an escrow or investment account the lender benefits from.
7. The seller reports the sale on the installment method under §453.

The regulation adds that a deal can be "substantially similar" without every element. Its example: a seller transfers property to an intermediary for an installment note, the intermediary quickly transfers it to a previously identified buyer, and the seller receives a loan "for which the cash or property from the buyer serves indirectly as collateral" (Prop. Reg. §1.6011-13(c)).

Promoters' claim: the seller holds an installment note, so gain is reported only as note principal is paid, decades later, while the loan proceeds are not income because they are borrowed.

The IRS response

The proposed listing. On August 4, 2023, Treasury and the IRS published proposed regulations identifying monetized installment sales, and substantially similar transactions, as listed transactions (REG-109348-22, 88 FR 51756). A public hearing set for later that year was cancelled (88 FR 70412, Oct. 11, 2023). A Federal Register search on September 27, 2026 showed only those two documents and no final rule. Status: proposed, not final. Under its own terms, the listing takes effect only when final regulations are published (Prop. Reg. §1.6011-13(e)).

The Dirty Dozen. The IRS's 2023 Dirty Dozen list of tax schemes included monetized installment sales (IR-2023-71).

Chief Counsel's memo. In a memo dated October 31, 2019 and released May 7, 2021, IRS Chief Counsel said "we generally agree that the theory on which promoters base the arrangements is flawed" and listed six problems, including that the intermediary does not appear to be the true buyer (§453(f)), that debt secured by a note is treated as payment (§453A(d)), and that notes secured by cash are payment (Temp. Reg. §15a.453-1(b)(3)) (CCA 202118016).

The 2012 memo promoters cite. Promoters often point to a 2012 field memo, FAA 20123401F. It told an examiner not to assert substance-over-form or step-transaction arguments against one company's sale of farm property followed by a loan against the buyer's notes. That deal had no intermediary, and farm property is exempt from the rule that borrowing against an installment note counts as payment (§453A(b)(3)(B)). The memo states that it may not be cited as precedent, and CCA 202118016 called it "distinguishable."

Why the loan looks like payment

The preamble to the proposed regulation gives three lines of argument (88 FR at 51759-60).

1. The intermediary is disregarded. "A sale by one person cannot be transformed for tax purposes into a sale by another by using the latter as a conduit through which to pass title" (Commissioner v. Court Holding Co., 324 U.S. 331, 334 (1945)). The preamble also cites Wrenn v. Commissioner, 67 T.C. 576 (1976), and Blueberry Land Co. v. Commissioner, 361 F.2d 93 (5th Cir. 1966), where interposed sales were disregarded, and says the intermediary does not bear the benefits and burdens of ownership. If the intermediary drops out, the seller sold directly to the buyer for cash.

2. The seller is treated as paid in full at the sale. Three separate routes lead there:

• The installment note is indirectly secured by the sale proceeds, and a note secured directly or indirectly by cash or a cash equivalent is a payment (Temp. Reg. §15a.453-1(b)(3)).
• The "loan" is not a bona fide loan, so its proceeds are simply payment.
• The pledge rule: if debt is secured by an installment obligation, the net loan proceeds are treated as a payment on the obligation (§453A(d)(1)), and an arrangement that "allows the taxpayer to satisfy all or a portion of the indebtedness with the installment obligation" counts as security (§453A(d)(4)). The pledge rule applies to sales over $150,000 even if the notes are under $5 million. See Section 453A.

3. Economic substance and related doctrines. The preamble says the arrangement may be disregarded or recharacterized under §7701(o) or substance over form, and that step-transaction and conduit theories may apply.

A worked example

Simple example. A seller has land with a $5,000,000 sale price and a $1,000,000 basis: $4,000,000 of long-term gain, no depreciation, top federal bracket. In a monetized arrangement the seller reports no principal received in the year of sale and receives loan proceeds equal to 95% of the price (a hypothetical figure for illustration). The table shows what the seller expects and what happens if the IRS's position prevails.

The penalty line assumes the 20% rate applies to the full $952,000 underpayment; the actual penalty regime depends on the facts and on whether the transaction is listed when the return is filed. State tax would be on top.

Disclosure and penalty exposure

If the proposed regulation becomes final:

• Participants must disclose. Sellers, intermediaries and lenders are participants; buyers are not (Prop. Reg. §1.6011-13(d)). Listed transactions are disclosed on Form 8886 under Reg. §1.6011-4.
• Failure to disclose carries a separate penalty. Under §6707A the penalty is 75% of the decrease in tax resulting from the transaction, capped for a listed transaction at $100,000 for a natural person ($200,000 for others), with a minimum of $5,000 for a natural person ($10,000 for others).
• The statute of limitations can stay open. The preamble notes an extended assessment period for undisclosed listed transactions under §6501(c)(10).
• Advisers have obligations too. Material advisers must disclose and keep investor lists (§§6111, 6112), and the preamble lists other penalties the IRS may apply to people involved, including the accuracy-related penalties in §§6662 and 6662A, the preparer penalty in §6694, and the promoter penalty in §6700.
• Past returns. The preamble says the IRS "will take the position in litigation that taxpayers are not entitled to the purported tax benefits," and that taxpayers who already claimed them should consider correcting through an amended return or other available means.

Even before any rule is final, the underlying tax arguments above apply today. Form 8275 disclosure offers limited protection here: it does not reduce the substantial-understatement penalty for an item attributable to a tax shelter (§6662(d)(2)(C)).

California sellers face the same federal analysis. Ask your CPA how a federal adjustment would carry to your California return, and remember that California taxes gain on California real property even after you move (FTB Pub. 1100).

How a plain seller note or a structured sale differs

Plain seller financing is the textbook installment sale: the real buyer gives you a note, usually secured by the property, and you are taxed as you are paid. You get cash only as the buyer pays. See seller financing taxes.

A structured installment sale has no intermediary taking title and no loan to the seller. The real buyer pays the full price at closing, the obligation to pay the seller over time is assigned to an assignment company, usually funded by a fixed annuity it owns, and the seller cannot accelerate, pledge or borrow against the payments. The seller is an unsecured creditor of the assignment company, and a commission is built into the pricing; Hans earns that commission only if a structured sale is funded, so weigh this comparison with that in mind. The proposed regulation's text neither mentions nor carves out structured sales; a structured sale without a loan does not fit its described elements. A structured sale carries its own, different open legal question, about whether the assignment company's promise is a payment at closing. That question is covered in full in structured installment sale.

A deferred sales trust also puts a third party between seller and buyer, but pays the seller over time from the trust's investments rather than through a day-one loan. See deferred sales trust vs installment sale.

The test that separates them is simple to ask: does anyone offer you most of the price at closing as a "loan"? If yes, you are looking at the arrangement the IRS proposed to list.

Bottom line

A monetized installment sale tries to combine installment-method deferral with day-one cash through a loan funded by the buyer's money. The IRS has proposed listing it, Chief Counsel has called its theory flawed, and the IRS says it will contest the deferral in litigation. The proposed regulation is still not final as of September 2026, but its reasoning rests on existing law: conduit and substance doctrines, the cash-security rule, and the §453A(d) pledge rule. If you want deferral, the settled path is to be paid over time and actually wait for the money. Compare real options in the calculator and the installment sale guide.

Questions to ask your CPA

• Does any part of this deal give me the use of the sale proceeds before I receive note principal, through a loan, a line of credit or an account?
• Does an intermediary take title, even briefly, before the real buyer?
• Is my installment note secured, directly or indirectly, by the buyer's cash or by investments bought with it?
• If Prop. Reg. §1.6011-13 is finalized, would I be a participant with a Form 8886 filing obligation?
• If I already did one of these, what are my options to correct past returns, and what are the penalty and limitations exposures?
• Who is paid if I sign, and would their opinion support a reasonable-cause defense?

Educational only, not tax, legal or investment advice. Examples are illustrative. Have your CPA or tax attorney review your facts before you act. Hans Goldstein is a licensed insurance agent (CA Insurance License #4273294) and is not a CPA or attorney. He is paid a commission only if a structured installment sale is funded; seller financing pays him nothing. Disclosures.