Structured Installment Sales: Defer Taxes, Maximize the Sale, Secure Your Financial Future


Defer Taxes, Maximize the Sale, Secure the Financial Future….
Chad Ettmueller – JCR Settlements, LLC.

What if you could offer your clients a way to sell their business, property or other appreciated asset and avoid immediate tax obligations while growing the net proceeds in an attractive, tax-deferred manner with future payments they design unique to their needs?

If it seems too good to be true, you need to explore Structured Installment Sales (SIS).  Following approved IRS guidelines under IRC Section 453, Structured Installment Sales allow an individual the unique opportunity to defer their immediate tax obligation by placing a portion of their net proceeds into an annuity product with highly rated life insurance carriers. In so doing the Seller avoids constructive receipt of the funds and the IRS cannot tax them on that portion of the sale.

Sellers can design a future payment schedule that meets their unique needs, realizing significant income growth through the investment (as high as 10% depending on the design), paying a deferred tax obligation in the future year(s) when annuity payment is received. The Seller will pay both a pro-rated Capital Gains tax (at the cap-gains rate in the year payment is received) and a pro-rated Ordinary Income tax on the interest earned.

Traditional Installment Sales transact between the Buyer and the Seller and are wrought with risk, as the Seller is dependent on the creditworthiness of the Buyer and is hoping they will successfully make the future payments. A SIS changes everything, placing the creditworthiness of the life insurance company at the forefront of the transaction and allowing both parties to move forward without future risk. Moreover, as a result of the investment growth associated with the annuity, the Seller can quite often entertain offers that are lower than they have targeted, knowing the investment yield will more than make up for the difference. Combine that growth with the immediate tax savings on the portion placed into the annuity and the Structured Installment Sale offers a serious solution to many sales transactions.

In fact, more and more savvy Buyers are making offers wherein they incorporate a SIS as part of their offer. As a result, they are able to offer the Seller (ultimately) more than asking price while securing the property or business at a discounted price, providing them more immediate operating capital to make necessary enhancements to the property or business.

If all of this is not exciting enough, there are other highlights to the Structured Installment Sale:
– Seller can defer first payment up to 40 years.
– No investment minimums or maximums.
– Include future payment schedules to match future needs, including monthly, quarterly, semi-annual or annual payments and    lump sums on identified future dates.
– Index linked, market-based growth, with a guaranteed floor payment and uncapped growth based on market performance.
– For use in the sale of businesses, real estate or appreciated asset collections (art collections, vintage vehicles, wine, etc.)
– Backed by highly rated life insurance markets.

Please take a look at the attached illustration for a real life example of how the product works and the type of income such a solution can produce.  The highlighted area on page 3 will show the projected yields.  Pages 5-6 will show the projected monthly income.

As a quick example, a 51-year-old Seller in Florida sold his business for $25M. He placed $10M of the purchase into a Structured Installment Sale, saving approximately $1M in immediate tax obligations.  He deferred first payment 14 years, to his age 65, taking monthly payments for twenty (20) years thereafter.

Based on the projected growth of the Indexed linked annuity, and back testing, all the way back to 2006, the Seller is projected to earn between $50.5 and $157M, with a projected median growth of $85.5M. These are jaw dropping numbers to say the least and illustrate the power of the product.

To comport with IRS guidelines, the payment schedule for any SIS must be incorporated into the Sales Agreement as an addendum to the sale.
All parties must sign an assignment document, acknowledging the fact that all future payments are forthcoming from the life company, and not the Buyer.
Payment for the annuity must go directly from the Buyer to the Life Insurance Company with whom the SIS is placed to avoid constructive receipt by the Seller. If funds are deposited into the Seller’s account, this will trigger constructive receipt in the eyes of the IRS and an immediate tax obligation will be required and a structured installment sale cannot take place.
Depreciation Recapture cannot be placed into a SIS. All depreciation recapture must be recorded and appropriate taxes paid in the year of sale.
Deposits of more than $5M into the SIS will trigger an IRS Interest Penalty on an annual basis. This penalty is nominal and an annual lump sum equal to the penalty amount can be established, through the future payment schedule of the annuity, to pay this obligation.

Structured Installment Sales offer a remarkable advantage to all parties involved in a given transaction and should be considered in nearly every sale. There are no associated costs to establish a structured installment sale now, or in the future. However, such a sale must be coordinated by a licensed and appointed annuity advisor.

JCR Settlements enjoys serving as a Gold Sponsor of XPX and looks forward to assisting you and your clients, as appropriate.

Please do not hesitate to call or email with any questions or to request an investment illustration.

Chad Ettmueller
Senior Vice President
JCR Settlements, LLC

Updated: Feb 3, 2023

About the author
Chad Ettmueller of JCR Settlements, LLC is a member of XPX Atlanta

you need to maximize a sale through deferral of immediate tax obligations and the creative growth of sales proceeds through variable investment, installment sale strategies. Our services are free of charge and can help all parties in a transaction.