Ala. Admin. Code r. 810-3-44-.02

Current through Register Vol. 43, No. 1, October 31, 2024

Section 810-3-44-.02 - Disposition Of Installment Obligation

(1)

(a) For disposition before January 1, 1985. If an installment obligation is satisfied for other than its face value, sold or exchanged, the realized gain is recognized at that time.

(b) If an installment obligation is distributed, transmitted, or otherwise disposed of other than as in subparagraph (a) above, the balance of the unreported gain is recognized at that time.

(c) Exception is made to subparagraph (b) above in the event of transmission at death, if a qualified bond is filed with the Department of Revenue.

1. The bond required in the case of transmission at death of installment obligations shall be filed at the time of filing the return for the decedent for the year of his death or at such later time as may be specified by the Department of Revenue. Such bond in all cases shall be subject to the approval of the Commissioner of Revenue.

(2) For disposition after December 31, 1984, and before January 1, 1990.

(a)

1. General Rule. If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold, or otherwise disposed of, gain or loss shall be recognized to the extent of the difference between the basis of the obligation and -

(i) the amount realized, in the case of satisfaction at other than face value or a sale or exchange, or

(ii) the fair market value of the obligation at the time of distribution, transmission, or disposition, in the case of the 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.

2. The basis of an installment obligation shall be the excess of the face value of the obligation over an amount equal to the income which would be returnable were the obligation satisfied in full.

(b) Subparagraph (a) above does not apply to a transmission on the death of the decedent of an installment obligation to the estate of the decedent or to a transfer to a person (other than the obligor) pursuant to the right of such person to receive such amount by reason of the death of the decedent or by bequest, devise, or inheritance from the decedent.

1. If an installment obligation is cancelled or becomes unenforceable, such cancellation or unenforceability shall be treated as a transfer for purposes of this subparagraph (b).

2. If an installment obligation is transferred in a transaction described in this subparagraph (b), -

(i) an amount equal to the excess of the face amount of such obligation over the basis of the obligation in the hands of the decedent shall be considered as an item of gross income in respect of the decedent, and

(ii) such obligation shall be considered a right to receive an item of gross income in respect of the decedent, but the amount includable in gross income shall be reduced by an amount equal to the basis of the obligation in the hands of the decedent.

(c)

1. If an installment obligation is distributed in a liquidation to which § 40-18-8(i) (relating to complete liquidation of subsidiaries) applies, and the basis of such obligation in the lands of the distributee is determined under § 40-18-6(a)(6), then no gain or loss with respect to the distribution of such obligation shall be recognized by the distributing corporation.

(i) If the distributing corporation is -

(I) a domestic corporation and the installment obligation has a business situs in Alabama or would be classifiable as nonbusiness income allocable to Alabama under Reg. 810-3-31-.02 if the distributing corporation were a foreign corporation, or

(II) a foreign corporation and the installment obligation represents business apportionable income as defined in Reg. 810-3-31-.02, or

(III) a foreign corporation and the installment obligation represents nonbusiness allocable income which is allocable to Alabama as defined in Reg. 810-3-31-.02; then the nonrecognition provision of this subparagraph (c) shall not apply if the distributee is a foreign corporation, unless the distributee executes an agreement to timely file income tax returns with this Department reporting the income from such installment obligation to this state; to timely pay any income tax due on such income, and consenting to the jurisdiction of this Department and the Courts of Alabama for the filing of such returns and the collection of such taxes.

(ii) The agreement required in subsection (i) above shall be on a form furnished by the Department, or a reasonable facsimile thereof; properly executed; and included in the return of the distributing corporation for its taxable year in which the transfer occurs. Such consent may not be cancelled, revoked or amended after the due date (with extensions) of the return of the distributing corporation.

(iii)

(I) In the case of a distribution from a distributor described in clauses (I) and (III) of subsection 1.

(i) above, the distributee shall allocate income from such installment obligations to Alabama, notwithstanding the apportionment and allocation rules of Reg. 810-3-31-.02.

(II) In the case of a distribution from a distributor described in clause (II) of subsection 1.(i) above -

I. if the distributee is not otherwise required to file income tax returns with this Department, income from such installment obligations shall be allocated to Alabama, notwithstanding the apportionment and allocation rules of Reg. 810-3-31-.02.

II. if the distributee is otherwise required to file income tax returns with this Department, income from such installment obligations shall be included in apportionable income of the distributee as provided by Reg. 810-3-31-.02.

2. If an installment obligation is distributed by a corporation in the course of a liquidation, and under § 40-18-8(j) no gain or loss would have been recognized to the corporation if the corporation had sold or exchanged such installment obligation on the day of such distribution, then no gain or loss shall be recognized to such corporation by reason of such distribution.

(i) This section 2 does not apply to the extent that gain is required to be recognized under §§ 341(f), 617(d)(1), 1245(a), 1252(a), 1254(a) or 1276(a) of Title 26, U.S.C.

(ii) If the distributing corporation is -

(II) a foreign corporation and the installment obligation represents business apportionable income as defined in Reg. 810-3-31-.02, or

(III) a foreign corporation and the installment obligation represents nonbusiness income which is allocable to Alabama as defined in Reg. 810-3-31-.02; then the nonrecognition provision of this section 2 shall not apply if the distributee is not a resident of Alabama, unless the distributee executes an agreement to timely file income tax returns with this Department reporting the income from such installment obligation to this state; to timely pay any income tax due on such income, and consenting to the jurisdiction of this Department and the State of Alabama for the filing of such returns and the collection of such taxes.

(iii) The agreement required in subsection (ii) above shall be on a form furnished by the Department, or a reasonable facsimile thereof; properly executed; and included in the return of the distributing corporation for its taxable year in which the transfer occurs. Such consent may not be cancelled, revoked or amended after the due date (with extensions) of the return of the distributing corporation.

(iv)

(I) In the case of a distribution from a distributor described in clauses (I) and (III) of subsection 2.(ii) above, the distributee shall allocate income from such installment obligations to Alabama, notwithstanding the apportionment and allocation rules of Reg. 810-3-31-.02.

(II) In the case of a distribution from a distributor described in clause (II) of subsection 2.(ii) above

II. If the distributee is otherwise required to file income tax returns with this Department, income from such installment obligations shall be included in apportionable income of the distributee as provided by Reg. 810-3-31-.02.

(d) If an installment obligation is transferred to a spouse or former spouse (but only if incident to a divorce), then no gain or loss shall be recognized on such disposition.

(i) This subparagraph (d) does not apply if the transferee is not a resident of Alabama, unless the distributee executes an agreement to timely file income tax returns with this Department reporting the income from such installment obligation to this state; to timely pay any income tax due on such income, and consenting to the jurisdiction of this Department and the State of Alabama for the filing of such returns an the collection of such taxes.

(ii) For purposes of this subparagraph (d), the term "incident to a divorce" means the transfer takes place within one (1) year after the date on which the marriage ceases, or is related to the cessation of the marriage.

(3) For dispositions after December 31, 1989, refer to Regs. 810-3-7, 810-3-8 and 810-3-140.02 -(3).

Author: Royce Lader.

Ala. Admin. Code r. 810-3-44-.02

Adopted September 30, 1982. Amended filed July 27, 1988; May 15, 1992.

Statutory Authority:Code of Ala. 1975, § 40-18-44.