This should be of interest of anyone selling mobile homes using a note.
The gist: Cash method taxpayer who is a dealer in mobile homes showed, via appraisers, that the notes received on the sale of a mobile home were worth zero and that no income needed to be reported until cash was actually received.
That’s not quite right.
Taxpayer was deemed to be a MH dealer and NOT eligible for installment sales method or cash accounting, (even though installment method is permissible for land-only sales). This means all tax on the entire total sales price (minus basis) must be accounted for and paid up front.
And anyone who wants to know why POH is not a good investment should read this case.
Thanks, I’ll re-read, It was a quick read but thought it worth posting.
Very interesting read thanks for posting. Sounds like the only reason they were not hammered for face value of note on day of sale (less basis) was because the notes were so poorly written as to have no resale value. I.e. no length of term or number of payments stated, no credit check, no income verification, high default rate over 50% at 2 years 90% by 6 years.
And just to be clear, what this person did was against the law in so many ways, #1 by selling homes but not really “selling” them which is a violation of all sorts of consumer protection laws, and #2 by reporting his income incorrectly (but the IRS’s correct recalculation as an “accrual taxpayer” was stopped by the court because it was not carried out properly).
If I understood correctly, the gist of the plaintiff’s argument is that they are a “cash basis” taxpayer and they won’t know if the sale “went through” until they receive the final cash payment, and until then it’s just like renting (which is true if beside the point).
The IRS said, you have to be an accrual taxpayer and you’re a dealer and you’re not following the correct dealer rules (which is also true).
The IRS wants to capture the increase in value of the capital sale transaction when the sale is “realized” (per section 1001, IIRC) but the plaintiff and experts convinced the judge that there was no additional value in the sale transaction notwithstanding the face value of the notes.