Permission to revoke an inadvertent election out of the installment method (§ 453(d))

Plain-English summary

A married couple sold their business and a separately owned asset, taking part
of the price for that asset as an installment note payable over several years.
Normally the installment method lets a seller spread the gain across the years
payments come in. On their Year 1 return, the couple's preparers never
discussed the installment method, so the couple unknowingly elected out of it
and reported all the gain up front. A new preparer later spotted the mistake.
Under section 453(d), an election out of the installment method can be revoked
only with IRS consent, so the couple asked for permission to revoke it. The
IRS agreed: the election out was inadvertent, the request did not use
hindsight and was not aimed at avoiding tax, and none of the affected tax
years were closed. The couple has 75 days from the date of the letter to
revoke by filing amended returns using the installment method, with a copy of
the ruling attached. As usual, the IRS did not rule on whether the couple is
actually eligible for the installment method or how much income they must
report.

Ruling snapshot

• Question: May the taxpayers revoke an inadvertent election out of the installment method under IRC § 453(d)?
• Outcome: Approved (consent to revoke granted; 75 days to file amended returns using the installment method)
• Key authorities: IRC § 453(a), (b), (d)(1), (d)(3); Temp. Treas. Reg. § 15A.453-1(d)(4)

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
                                                 Washington, DC 20224

Number: 202623014                                Third Party Communication: None
Release Date: 6/5/2026                           Date of Communication: Not Applicable
Index Number: 453.00-00, 453.08-00
                                                 Person To Contact:
---------------------------------------------    ---------------------, ID No. -----------------
--------------------------------------           Telephone Number:
-------------------------------------------      --------------------
                                                 Refer Reply To:
                                                 CC:ITA:B04
                                                 PLR-118773-25
                                                 Date:
                                                 March 05, 2026

LEGEND

Taxpayers       = ----------------------------------------------------------
                  -----------------------------------------------------
Business        = ----------------------------------------------------------
P               = -------------------------
Asset A         = ---------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
                  ------------------------------------------------------------------------------
Buyers          = ----------------------------------------------------------------------------------
                  ---------------------
Preparer 1      = ---------------------------------
Preparer 2      = -------------------------------
New Preparer    = ---------------------------
Year 1          = ------------
Year 2          = -----------
Year 3          = -----------
Date 1          = -----------------------------
Date 2          = -----------------------------
$X              = ---------------
$Y              = ---------------
$Z              = -----------------
N               = --

Dear ------------------------------:

This letter refers to your request under section 453(d)(3) of the Internal Revenue Code
and section 15A.453-1(d)(4) of the Temporary Income Tax Regulations under the
Installment Sales Revision Act.[1]

                                         FACTS

The facts as represented by Taxpayers are as follows:

Taxpayers are married individuals who file their federal income tax returns jointly.
Taxpayers use the cash method of accounting and use the calendar year as their
taxable year.

Taxpayers, through P, operated Business. Wholly owned by Taxpayers, P owned all
business assets used by Business, except Asset A, which Taxpayers directly owned.
On Date 1, Taxpayers, directly, and indirectly through P, sold to Buyers for $X
substantially all of Business assets and Asset A. The parties allocated $Y to Asset A,
which amount Buyers paid in a combination of cash and an installment note obligation
with a face value of $Z (Note). Note was to be fully repaid in N years, with the first
payment due on Date 2.

Taxpayers retained Preparer 1 and Preparer 2 to prepare their federal income tax return
for Year 1 (Year 1 Return). Taxpayers timely provided them with all information
necessary to report the sale of Business assets and Asset A on the federal income tax
return. Neither Preparer 1 nor Preparer 2, however, discussed with Taxpayers the tax
treatment of the sale, including whether they should use the installment sale method to
account for the income attributable to Note. Although Taxpayers reviewed Year 1
Return before filing it, they did not realize that they were electing out of the installment
method for the income attributable to Note.

In Year 3, Taxpayers retained New Preparer to prepare their Year 2 federal income tax
return. Reviewing Taxpayers' filed Year 1 Return, New Preparer questioned their
election out of the installment method for Year 1. Subsequently, Preparer 1 confirmed
that Taxpayers should have used the installment method to account for the income
attributable to Note.

No facts have changed since the original due date of Year 1 Return that would make
revocation of Taxpayers' election out of the installment method advantageous.

----------
[1] Unless noted otherwise, all section references are to the Internal Revenue Code or the Temporary
Income Tax Regulations under the Installment Sales Revision Act (26 C.F.R. part 15A), as they were in
effect for the taxable years at issue.
----------

Taxpayers do not anticipate the granting of this ruling request to result in lower tax
liability for Taxpayers in the aggregate for all taxable years affected compared to the tax
liability that Taxpayers would have had if Taxpayers had never elected out of the
installment method for the income attributable to Note.

Year 1 Return is not closed, and neither are Taxpayers' federal income tax returns on
which the income attributable to Note is reportable under the installment method. As of
the filing of this ruling request, Taxpayers have not been before examination, before
appeals, or before a federal court with respect to Year 1 Return or Taxpayers' federal
income tax returns on which the income attributable to Note is reportable under the
installment method.

                                LAW AND ANALYSIS

Section 453(a) provides that, generally, a taxpayer must report income from an
installment sale under the installment method. Section 453(b) defines installment sale
as a disposition of property for which at least one payment is to be received after the
close of the taxable year of the disposition.

Section 453(d)(1) provides that section 453(a) does not apply to a disposition if the
taxpayer so elects. Section 453(d)(3) provides that the election "may be revoked only
with the consent of the Secretary." See also § 15a.453-1(d)(4). A revocation will not be
permitted when one of its purposes is the avoidance of federal taxes, or when the
taxable year in which any payment was received is closed. Id.

Here, Preparers failed to explain to Taxpayers how the income attributable to Note
should be accounted for on Taxpayers' return and whether using the installment method
would be appropriate. As a result, Taxpayers inadvertently elected out of the
installment method. Moreover, Taxpayers did not use hindsight in requesting relief, and
this request was not motivated by an intent to avoid federal taxes. Further, Taxpayers'
taxable year in which the installment sale took place and taxable years in which income
from that sale is reportable under the installment method are not closed.

                                   CONCLUSION

Based on the information submitted and the representations made, Taxpayers are
granted permission to revoke their election out of the installment method for the income
attributable to Note. Permission is granted for the period that ends 75 calendar days
after the date of this letter. To revoke their election out of the installment method,
Taxpayers must file an amended federal income tax return for Year 1 and any other
taxable year for which Taxpayers previously filed a federal income tax return on which a
portion of the income attributable to Note is reportable under the installment method. A
copy of this letter ruling must be attached to any amended return.

Except as expressly provided here, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referred to in
this letter, including whether Taxpayers are eligible to use the installment method or
how much income should be reported under the installment method.

This ruling is directed only to Taxpayers. Section 6110(k)(3) provides that it may not be
used or cited as precedent.

The ruling contained in this letter is based upon information and representations you
submitted with properly executed penalty of perjury statements. While this office has
not verified any of the material submitted in support of the ruling request, it is subject to
verification on examination.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.

                                         Sincerely,



                                         Sue-Jean Kim
                                         Senior Technician Reviewer, Branch 4
                                         Office of Associate Chief Counsel
                                         (Income Tax & Accounting)

Enclosure:

Copy for § 6110 purposes

cc: -----------------------------