The limitation requires the taxpayer to treat installments as having been received even though no payments have been made. The amount is based on the taxpayer's outstanding indebtedness at the end of the taxable year. The amounts so determined will be treated as a payment of the installment obligation immediately before the close of the taxable year. When the taxpayer actually receives payment on the installment obligation in later years he or she need not recognize any gain until the payments exceed the AII in previous years. Also, the basis of the taxpayer's other assets may be adjusted using the deduction for depreciation under Sec.
Regulations have yet to be written to define outstanding indebtedness.
The Committee reports make clear that liabilities to be included are accounts payable, accrued expenses as well as bank loans and indebtedness arising from the issuance of bonds in connection with the purchase of property. The Committee reports also state that year-end clearing of indebtedness for the purpose of reducing indebtedness, just to avoid the proportionate disallowance rules, will be disregarded. There is still another TRA 86 provision which affects seller financed real estate. The entire deferred gain on any installment sale is an adjustment for alternative minimum tax purposes. To the extent that there is AII or receipt of payments in future years there will be a credit in those years to the extent that there has been a payment of the AMT on these amounts.