Rev. Rul. 74-613

Advice has been requested whether, under the circumstances set forth below, the transfer of an installment obligation to a trust is a "disposition" of such obligation within the meaning of section 453(d) of the Internal Revenue Code of 1954.

An individual who was not a dealer in real property sold a building in 1971 and elected to report the gain on the installment method of accounting as provided by section 453 of the Code. Shortly after the sale he transferred the installment obligation to a trust, all the income of which is to be paid to him by the trustees during his lifetime. On his death the property remaining in the trust is to be distributed to his children. However, the individual retained the right to revoke the trust at any time during his lifetime and to revest title to the assets held by the trust in himself.

Section 676 of the Code provides, in pertinent part, that the grantor of a trust shall be treated as the owner of any portion of a trust where at any time the power to revest in the grantor title to such portion is exercisable by him.

Section 1.671-3(a)(1) of the Income Tax Regulations provides, in part, that if a grantor or another person is treated as the owner of an entire trust, he takes into account in computing his income tax liability all items of income, deductions, and credit (including capital gains and losses) to which he would have been entitled had the trust not been in existence during the period he is treated as owner.

Under section 453 of the Code a taxpayer may, under certain conditions, elect to report the gain from the sale of real property using the installment method of accounting. Under this method the taxpayer must include in his gross income each year that proportion of the installment payments actually received which the gain, realized or to be realized when payment is completed, bears to the total contract price.

Section 453(d) of the Code provides, in part, that if an installment obligation is satisfied at other than its face value or distributed, transmitted, sold, or otherwise disposed of, gain or loss shall result to the extent of the difference between the basis of the obligation and (A) the amount realized, in the case of satisfaction at other than face value or a sale or exchange, or (B) the fair market value of the obligation at the time of distribution, transmission, or disposition otherwise than by sale or exchange. Any gain or loss so resulting shall be considered as resulting from the sale or exchange of the property in respect of which the installment obligation was received.

Since in the instant case the grantor has the power to revest title to the assets of the trust in himself, he is treated as the owner of the entire trust under section 676 of the Code.

Accordingly, the transfer of the installment obligation to the trust is not a disposition that gives rise to gain or loss under the provisions of section 453(d) of the Code. Therefore, during the period he is treated as owner the grantor must continue to report the gain from the sale of the real property on the installment method of accounting as if the trust were not in existence.

For other cases involving the question of whether a transfer to a trust is a "disposition," see Rev. Rul. 67-70, 1967-1 C.B. 106, and Rev. Rul. 67-167, 1967-1 C.B. 107.

Rev. Rul. 73-584, 1973-2 C.B. 162, contains the same holding as the instant Revenue Ruling. Rev. Rul. 73-584 is being republished here because of a printing error in the Cumulative Bulletin whereby some of its facts and discussions of law which were correctly printed in 1973-52 I.R.B. 12, were excluded.

Rev. Rul. 73-584 is hereby superseded.