With interest rates rising for much of the past two years, bank financing has become less and less attractive. In order to finance a deal, you must be able to handle the installment sale and, more specifically, the contingency sale.

Treasury Reg. Sec. 15A.453-1(c) (1) states that unless a taxpayer elects not to report on the installment basis in accordance with IRC Sec. 453(d), then a contingent payment sale must be reported on the installment method. In general, a contingent payment sale is one in which there is a sale or other disposition of property where the aggregate selling price cannot be determined by the close of the taxable year in which such sale or other disposition occurs.

Without an aggregate sales price, how is the amount of gain to be recognized determined and how is basis allocated to payments received and those to be received?

A contingency sale can result in three different scenarios: one in which a maximum selling price is determinable, another when a maximum selling price is not determinable but the time over which payments will be received is determinable, and, finally, when neither a maximum selling price nor a definite payment term is determinable.