A Review of Income Tax Issues Associated With Intra-Family Loans & Installment Sales Series IV of IV

This memorandum explores the complex interplay between the partnership income tax rules of IRC Section 754 governing inside basis adjustments to partnership assets upon the sale of a partnership interest to an irrevocable non-grantor trust in exchange for an installment promissory note governed by IRC Section 453. If structured properly, such a transaction has the potential to allow families to immediately convert substantially appreciated assets to cash or other diversified assets while deferring income taxes over a long period of time. This type of planning also may produce significant estate planning benefits by removing post-transfer appreciation from the selling partner’s taxable estate.

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