Taxing the sale of unrealized receivables

Mingo sold her partnership interest in PWC to IBM; part of its value included $126,240 of unrealized receivables.  She sought to report them for tax purposes using the installment method of accounting.  The IRS disagreed and the Tax Court and Fifth Circuit accepted its position.  Mingo v. Commissioner of Internal Revenue, No. 13-60801 (Dec. 9, 2014).  The underlying statute, section 741 of the Internal Revenue Code, provides that sale of a partnership interest is ordinarily considered the sale of a capital asset, except for gain from unrealized receivables; the purpose “is to prohibit ordinary income from being transformed into capital gains (which is taxed more favorably) simply by being passed through a partnership and sold.”

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