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Monetized Installment Sale - IRS Finally Says It Does Not Work

Peter J Reilly

The promoters of Monetized Installment Sales got some bad news from the IRS earlier this month. The IRS released an analysis done by the Office of Chief Counsel outlining six, count them six, ways in which the transaction does not work as the promoters claim. The release will not stop the industry in its tracks, but it will probably be a relief to practitioners who have been advising that the technique is flawed. 

How MIS Supposedly Works 

The Monetized Installment Sale (MIS) seems like a really great deal, If you want countless enthusiastic explanations of it, I suggest that you search the term on YouTube. That is where you will encounter what Ruth Benjamin of Financial Tax Strategies refers to as "introducers". If you have a big capital gain coming up and mention it to your barber or at the coffee hour after church, an introducer is likely to find you. According to one of my sources they are indefatigable.

Here is the nutshell version. There are five parties - seller, buyer, dealer, lender and escrow agent. The seller has a deal with the buyer. The dealer steps in and buys from the seller in exchange for a 30 year note, interest only at 5.7% to be paid to the escrow agent. The dealer then flips to the buyer for the original negotiated cash price. If the dealer performs on the note there is a 5% discount on the principal at maturity.

On Day 2 or so, the lender comes into the picture and lends the seller 95% of the proceeds for a 30 year note, interest only at 6% to be paid by the escrow agent. The identical payoff of the notes thirty years hence also flows through the escrow account.

The 6% rate is what I was quoted by S. Crow Collateral.

There are some fees involved. After all introducers have to make a living also so ultimately seller will net around 93% of the proceeds. How good a deal that is depends on the seller's basis in the asset and whether they can deduct the interest paid by the escrow agent to the lender. 

The cash washes, but it might not be a wash for income tax purposes. That would depend on how the money is spent. Most significantly on Day 2 or so, the seller has all the money they are ever going to get, but they have kicked the capital gains tax can thirty years down the road. Off the record observations indicate that maybe it is expected that the can will never be picked up. 

The Theory 

Although there are a lot of introducers, I know of only one company that acts as a dealer. It is S. Crow Collateral Corp (Crow), founded in 2011 by Stanley D Crow. Ruth Benjamin told me that there is only one other company, but she would not identify it. She likes that they will take smaller deals than Crow. On its website Crow has a number of documents that explain and defend the transaction. Included among them is a memo from the IRS chief counsel (20123401F) that appears to support the transaction.

I was not convinced and I am not alone. Attorney Lou Vlahos in Monetized Installment Sales: What Are They About? argues that the MIS, in effect, violates the rule that a pledge of an installment obligation triggers the gain.

No, this arrangement is not undertaken as a formal pledge by the seller-taxpayer of the intermediary’s installment obligation; and, no, the intermediary’s obligation to the seller is not formally “secured” by cash or cash equivalents.

Nevertheless, the monetized installment sale arrangement described above is substantively the same as one or both of these gain-recognition-triggering events.

Mr. Vlahos also noted something that I had missed. The property discussed in CCM 20123401F was farm property, which exempted it from the pledge rule.

More significantly when I reached out to the IRS I heard back from spokesman Bruce Friedland who wrote me:

The IRS is aware of this transaction and does not believe it provides the tax benefits being sought. The cited advice permits monetization of an installment note received in a sale of farm property, which are exempted from the pledge rules generally requiring gain recognition upon monetization on an installment obligation.

Further there has been a significant amount of litigation involving Crow resisting summonses from the IRS. 

The New Release 

Now we have something more definitive although to be fair it is far short of authority. It is an "Emailed Chief Counsel Advice" - CCA_2019103109421213 dated October 31, 2019. It has a Release Date of 5/7/2021.

The e-mail notes that there are multiple promoters and sub-promoters so not every point is applicable in all cases. The author agrees that the theory on which promoters base the arrangement is flawed. Here are the points.

  1. No genuine indebtedness. An unsecured nonrecourse loan with no collateral is not genuine. There is no reason for a "borrower" to repay it.
  2. The debt is secured by the escrow giving the seller an economic benefit making the payment taxable.
  3. The debt is secured by the dealer note resulting in deemed payment under the pledging rule.
  4. The intermediary is not the true buyer making the note not subject to installment treatment
  5. Receipt of evidence of indebtedness secured by cash will be treated as receipt of payment.
  6. NSAR 20123401F which is sort of the "Holy Grail" of MIS is distinguishable. It does not involve an intermediary and as Lou Vlahos alertly noted it concerns farm property which is exempt from the pledging rule. 


I spoke with Stanley Crow, the founder of S Crow Collateral and according to his bio a 1967 graduate of Harvard Law School. (There is an ad in Harvard Magazine.) He told me that his company does not do anything that is noted in the CCA and that IRS was referring to his competitors. He had no comment on the company's litigation with the IRS and he did not tell me who the competitors are. When asked, he indicated that there may be a response going up on the company website.

The IRS has not responded to my inquiry about why the email advice was released nearly a year and a half after it was drafted.

Other Coverage

If you want to read a deeper analysis on MIS and earn some CPE to boot you can check out my piece Monetized Installment Sale - Risky Business on Think Outside The Tax Box.

Louis Vlahos of Rivkin Radler, whom I cited above, has a really good analysis on JDSUPRA - Cash In Hand, Tax Deferral, Monetized Installment Sales: No, You Can’t Have It All.

Nick Gruidi, Joseph Wiener and Eric Brauer have As income tax rates increase, beware of certain deferral strategies on the RSM website.

CCA 202118016 is a reminder that taxpayers should carefully analyze tax deferral techniques that appear too good to be true and seek appropriate tax advice. has A Skeptical IRS Comments on Monetized Installment Sale Transactions.


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