Question

explain pls!

4. Which of the following statements regarding installment sales is/are correct? 1. The contract should specify a rate of interest at least equal to the applicable federal rate or it will be imputed. 2. Installment sales tax treatment is automatic unless the taxpayer elects otherwise. 3. Installment sales țax treatment applies to both gains and losses. 4. The taxpayer may use the installment method only if the amount received in the year of sale exceeds 20 % of the sales price. 1 and 2 only d. 1,2, and 4 only. 1,2, 3, and 4 a. 3 and 4 only 2 and 3 only. b. e. C. Beston with an adineted basis of $100.000 and a fair market value of

Answer 1

a) 1 and 2 only

Point (1) is correct because payments received are subject to the imputed interest rules under section 483 or section 1274, unless the parties specify that the payments include interest at a rate at least equal to the AFR

Point (2) is correct because if a sale is eligible, installment method reporting is automatic unless Seller elects out by reporting the full gain on a timely filed return

Point (3) is incorrect because installment sales tax treatment does not apply to losses, which must be taken in the year of sale under the closed transaction method or later if the open transaction method is used.

Point (4) is incorrect because taxpayer may use installment method only if at least one payment received after taxable year.

So option a) is correct.