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 2019.
A) Because Kathy is a shareholder in Matrix, she cannot report the gain by the installment method.
B) Generally, if Kathy owned 100% of the Matrix stock, Kathy cannot use the installment method.
C) Generally, if Kathy owned only 60% rather than 100% of the Matrix stock, she could use the installment method.
D) Kathy cannot use the installment method to report the gain because the realized gain is equal to the depreciation she claimed on the building.
E) None of the above.

Question

Quizplus · Accepted Answer

Kathy cannot use the installment method if she owns more than 50% of the corporation's stock, as it would be considered a related party transaction.

Kathy Was a Shareholder in Matrix, Inc