Kathy was a shareholder in Matrix,Inc. ,when she sold the corporation a commercial building.The building cost $500,000 and the balance in the accumulated depreciation account was $400,000.Matrix,Inc. ,paid $100,000 in the year of sale and gave Kathy a note for $400,000 plus adequate interest due in 2016.

Question

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The related party sale of depreciable property results in a penalty.Section 453(g)provides generally that the installment method is not available if the seller owns more than 50% of the stock in the corporation.However,if the taxpayer can establish that tax avoidance was not a principal purpose of the transaction,the installment method can be used.

Kathy Was a Shareholder in Matrix,Inc