Installment Sales Revision Act of 1980
PL 96-471 (H.R.6883), enacted 10/19/1980

PUBLIC LAW 96-471—OCT. 19, 1980 
94 STAT. 2247 
Public Law 96-471 
96th Congress 
An Act 
To amend the Internal Revenue Code of 1954 to revise the rules relating to certain 
installment sales. 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; AMENDMENT OF 1954 CODE. 
Oct. 19, 1980 
[H.R. 6883] 
26 u s e 453. 
"Installment 
sale." 
Installment 
Sales Revision 
Act of 1980. 
(a) SHORT TITLE.—This Act may be cited as the "Installment Sales 26 use i note. 
Revision Act of 1980". 
(b) AMENDMENT OF 1954 CODE.—Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed 
in terms of an amendment to, or repeal of, a section or other 
provision, the reference shall be considered to be made to a section or 
other provision of the Internal Revenue Code of 1954. 
26 use i. 
SEC. 2. INSTALLMENT SALES RULES. 
(a) GENERAL RULE.—Subpart B of part II of subchapter E of chapter 
1 is amended by striking out section 453 and inserting in lieu thereof 
the following new sections: 
"SEC. 453. INSTALLMENT METHOD. 
"(a) GENERAL RULE.—Except as otherwise provided in this section, 
income from an installment sale shall be taken into account for 
purposes of this title under the installment method. 
"(b) INSTALLMENT SALE DEFINED.—For purposes of this section— 
"(1) IN GENERAL.—The term 'installment sale' means a disposi-
tion of property where at least 1 pajmient is to be received after 
the close of the taxable year in which the disposition occurs. 
"(2) EXCEPTIONS.—The term 'installment sale' does not 
include— 
"(A) DEALER DISPOSITION OF PERSONAL PROPERTY.—A dispo-
sition of personal property on the installment plan by a 
person who regularly sells or otherwise disposes of personal 
property on the installment plan. 
"(B) INVENTORIES OF PERSONAL PROPERTY.—A disposition of 
personal property of a kind which is required to be included 
in the inventory of the taxpayer if on hand at the close of the 
taxable year. 
"(c) INSTALLMENT METHOD DEFINED.—For purposes of this section, 
the term 'installment method' means a method under which the 
income recognized for any taxable year from a disposition is that 
proportion of the payments received in that year which the gross 
profit (realized or to be realized when pajmient is completed) bears to 
the total contract price. 
"(d) ELECTION OUT.— 
"(1) IN GENERAL.—Subsection (a) shall not apply to any disposi-
tion if the taxpayer elects to have subsection (a) not apply to such 
disposition. 
"Installment 
method." 
94 STAT. 2248 
PUBLIC LAW 96-471—OCT. 19, 1980 
"(2) TIME AND MANNER FOR MAKING ELECTION.—Except as 
otherwise provided by regulations, an election under paragraph 
(1) with respect to a disposition may be made only on or before 
the due date prescribed by law (including extensions) for filing 
the taxpayer's return of the tax imposed by this chapter for the 
taxable year in which the disposition occurs. Such an election 
shall be made in the manner prescribed by regulations. 
"(3) ELECTION REVOCABLE ONLY WITH CONSENT.—An election 
under paragraph (1) with respect to any disposition may be 
revoked only with the consent of the Secretary. 
"(e) SECOND DISPOSITIONS BY RELATED PERSONS.— 
"(1) IN GENERAL.—If— 
"(A) any person disposes of property to a related person 
(hereinafter in this subsection referred to as the 'first dispo-
sition*), and 
"(B) before the person making the first disposition receives 
all payments with respect to such disposition, the related 
person disposes of the property (hereinafter in this subsec-
tion referred to as the 'second disposition'), 
then, for purposes of this section, the amount realized with 
respect to such second disposition shall be treated as received at 
the time of the second disposition by the person making the first 
disposition, 
' (2) 2-YEAR CUTOFF FOR PROPERTY OTHER THAN MARKETABLE 
SECURITIES.— 
"(A) IN GENERAL.—Except in the case of marketable secu-
rities, paragraph (1) shall apply only if the date of the second 
disposition is not more than 2 years after the date of the first 
disposition. 
'(B) SUBSTANTIAL DIMINISHING OP RISK OF OWNERSHIP.— 
The running of the 2-year period set forth in subparagraph 
(A) shall be suspended with respect to any property for any 
period during which the related person's risk of loss with 
respect to the property is substantially diminished by— 
"(i) the holding of a put with respect to such property 
(or similar property), 
"(ii) the holding by another person of a right to 
acquire the property, or 
' (iii) a short sale or any other transaction. 
"(3) 
LIMITATION ON AMOUNT TREATED AS RECEIVED.—The 
amount treated for any taxable year as received by the person 
making the first disposition by reason of paragraph (1) shall not 
exceed the excess of— 
"(A) the lesser of— 
"(i) the total amount realized with respect to any 
second disposition of the property occurring before the 
close of the taxable year, or 
"(ii) the total contract price for the first disposition, 
over 
"(B) the sum of— 
"(i) the aggregate amount of payments received with 
respect to the first disposition before the close of such 
year, plus 
"(ii) the aggregate amount treated as received with 
respect to the first disposition for prior taxable years by 
reason of this subsection. 
"(4) FAIR MARKET VALUE WHERE DISPOSITION IS NOT SALE OR 
EXCHANGE.—For purposes of this subsection, if the second dispo-
PUBLIC LAW 96-471—OCT. 19, 1980 
94 STAT. 2249 
sition is not a sale or exchange, an amount equal to the fair 
market value of the property disposed of shall be substituted for 
the amount realized. 
"(5) 
LATER PAYMENTS TREATED AS RECEIPT OF TAX PAID 
AMOUNTS.—If paragraph (1) applies for any taxable year, pay-
ments received in subsequent taxable years by the person 
making the first disposition shall not be treated as the receipt of 
payments with respect to the first disposition to the extent that 
the aggregate of such pajmients does not exceed the amount 
treated as received by reason of paragraph (1). 
"(6) EXCEPTION FOR CERTAIN DISPOSITIONS.—For purposes of 
this subsection— 
"(A) REACQUISITIONS OF STOCK BY ISSUING CORPORATION NOT 
TREATED AS FIRST DISPOSITIONS.—Any sale or exchange of 
stock to the issuing corporation shall not be treated as a first 
disposition. 
"(B) INVOLUNTARY CONVERSIONS NOT TREATED AS SECOND 
DISPOSITIONS.—A compulsory or involuntary conversion 
(within the meaning of section 1033) and any transfer 
26 use 1033. 
thereafter shall not be treated as a second disposition if the 
first disposition occurred before the threat or imminence of 
the conversion. 
"(C) DISPOSITIONS AFTER DEATH.—Any transfer after the 
earlier of— 
"(i) the death of the person making the first disposi-
tion, or 
"(ii) the death of the person acquiring the property in 
the first disposition, 
and any transfer thereafter shall not be treated as a second 
disposition. 
"(7) EXCEPTION WHERE TAX AVOIDANCE NOT A PRINCIPAL PUR-
POSE.—This subsection shall not apply to a second disposition 
(and any transfer thereafter) if it is established to the satisfaction 
of the Secretary that neither the first disposition nor the second 
disposition had as one of its principal purposes the avoidance of 
Federal income tax. 
"(8) EXTENSION OF STATUTE OF UMITATIONS.—The period for 
assessing a deficiency with respect to a first disposition (to the 
extent such deficiency is attributable to the application of this 
subsection) shall not expire before the day which is 2 years after 
the date on which the person making the first disposition 
furnishes (in such manner as the Secretary may by regulations 
prescribe) a notice that there was a second disposition of the 
property to which this subsection may have applied. Such 
deficiency may be assessed notwithstanding the provisions of any 
law or rule of law which would otherwise prevent such 
assessment. 
"(f) DEFINITIONS AND SPECIAL RULES.—For purposes of this 
section— 
"(1) RELATED PERSON.—Except for purposes of subsections (g) 
and (h), the term 'related person' means a person whose stock 
would be attributed under section 318(a) (other than paragraph 26 use 318. 
(4) thereof) to the person first disposing of the property. 
"(2) MARKETABLE SECURITIES.—The term 'marketable securi-
ties' means any security for which, as of the date of the disposi-
tion, there was a market on an established securities market or 
otherwise. 
94 STAT. 2250 
PUBLIC LAW 96-471—OCT. 19, 1980 
"(3) PAYMENT.—Except as provided in paragraph (4), the term 
'payment' does not include the receipt of evidences of indebted-
ness of the person acquiring the property (whether or not 
pavment of such indebtedness is guaranteed by another person). 
(4) PURCHASER EVIDENCES OF INDEBTEDNESS PAYABLE ON 
D
E
M
A
N
D O
R R
E
A
D
I
L
Y TRADABLE.—Receipt of a bond or other 
evidence of indebtedness which— 
"(A) is payable on demand, or 
"(B) is issued by a corporation or a government or political 
subdivision thereof and is readily tradable, 
shall be treated as receipt of payment. 
"(5) READILY TRADABLE DEFINED.—For purposes of paragraph 
(4), the term 'readily tradable' means a bond or other evidence of 
indebtedness which is issued— 
"(A) with interest coupons attached or in registered form 
(other than one in registered form which the taxpayer 
establishes will not be readily tradable in an established 
securities market), or 
"(B) in any other form designed to render such bond or 
other evidence of indebtedness readily tradable in an estab-
lished securities market. 
"(6) LIKE-KIND EXCHANGES.—In the case of any exchange 
2
6 use 1031. 
described in section 1031(b)— 
"(A) the total contract price shall be reduced to take into 
account the amount of any property permitted to be received 
in such exchange without recognition of 
gain, 
"(B) the gross profit from such exchange shall be reduced 
to take into account any amount not recognized by reason of 
section 1031(b), and 
"(C) the term 'payment' shall not include any property 
permitted to be received in such exchange without recogni-
tion of 
gain. 
Similar rules shall apply in the case of an exchange which is 
26 use 356. 
described in section 356(a) and is not treated as a dividend. 
"(7) DEPRECIABLE PROPERTY.—The term 'depreciable property' 
means property of a character which (in the hands of the 
transferee) is subject to the allowance for depreciation provided 
2
6 use 167. 
in section 167. 
"(g) SALE OF DEPRECIABLE PROPERTY TO SPOUSE OR 80-PERCENT 
OWNED ENTITY — 
"(1) IN GENERAL.—In the case of an installment sale of depre-
ciable property between related persons within the meaning of 
Post, p. 2255. 
section 12390b), subsection (a) shall not apply, and, for purposes of 
this title, all payments to be received shall be deemed received in 
the year of the disposition. 
"(2) EXCEPTION WHERE TAX AVOIDANCE NOT A PRINCIPAL PUR-
POSE.—Paragraph (1) shall not apply if it is established to the 
satisfaction of the Secretary that the disposition did not have as 
one of its principal purposes the avoidance of Federal income tax. 
26 use 337. 
"(h) USE OF INSTALLMENT METHOD BY SHAREHOLDERS IN SECTION 337 
LIQUIDATIONS.— 
"(1) RECEIPT OP OBLIGATIONS NOT TREATED AS RECEIPT OF 
PAYMENT.— 
"(A) IN GENERAL.—If, in connection with a liquidation to 
which section 337 applies, in a transaction to which section 
2
6 use 331. 
331 applies the shareholder receives (in exchange for the 
shareholder's stock) an installment obligation acquired in 
respect of a sale or exchange by the corporation during the 
PUBLIC LAW 96-471—OCT. 19, 1980 
94 STAT. 2251 
12-month period set forth in section 337(a), then, for pur- 26 use 337. 
poses of this section, the receipt of pajrments under such 
obligation (but not the receipt of such obUgation) by the 
shareholder shall be treated as the receipt of payment for 
the stock. 
"(B) OBUGATIONS ATTRIBUTABLE TO SALE OF INVENTORY 
MUST RESULT FROM B
U
L
K SALE.—Subparagraph (A) shall not 
apply to an installment obligation described in section 
337(bXl)(B) unless such obligation is also described in section 
337(b)(2)(B). 
"(C) SPECIAL RULE WHERE OBUGOR AND gHAREHOLDER ARE 
RELATED PERSONS.—If the obligor of any installment obliga-
tion and the shareholder are related persons (within the 
meaning of section 1239(b)), to the extent such installment Post, p. 2255. 
obligation is attributable to the disposition by the corpora-
tion of depreciable property— 
"(i) subparagraph (A) shall not apply to such obliga-
tion, and 
"(ii) for purposes of this title, all payments to be 
received by the shareholder shall be deemed received in 
the year the shareholder receives the obligation. 
"(D) COORDINATION WITH SUBSECTION (exixA).—For pur-
poses of subsection (eXlXA), disposition of property by the 
corporation shall be treated also as disposition of such 
property by the shareholder. 
"(E) SALES BY UQUIDATING SUBSIDIARY.—For purposes of 
subparagraph (A), in any case to which section 337(c)(3) 26 use 337. 
applies, an obligation acquired in respect of a sale or 
exchange by the selling corporation shall be treated as so 
acquired by the corporation distributing the obligation to the 
shareholder. 
"(2) DISTRIBUTIONS RECEIVED IN MORE THAN i TAXABLE YEAR OF 
SHAREHOLDER.—If— 
"(A) paragraph (1) applies with respect to any installment 
obligation received by a shareholder from a corporation, and 
"(B) by reason of the liquidation such shareholder receives 
property in more than 1 taxable year, 
then, on completion of the liquidation, basis previously allocated 
to property so received shall be reallocated for all such taxable 
years so that the shareholder's basis in the stock of the corpora-
tion is properly allocated among all property received by such 
shareholder in such liquidation, 
"(i) REGULATIONS.— 
"(1) IN GENERAL.—The Secretary shall prescribe such regula-
tions as may be necessary or appropriate to carry out the 
provisions of this section. 
"(2) SELLING PRICE NOT READILY ASCERTAINABLE.—The regula-
tions prescribed under paragraph (1) shall include regulations 
providing for ratable basis recovery in transactions where the 
gross profit or the total contract price (or both) cannot be readily 
ascertained. 
•SEC. 453A. INSTALLMENT METHOD FOR DEALERS IN PERSONAL 26 USC 453A. 
PROPERTY. 
"(a) GENERAL RULE.— 
"(1) IN GENERAL.—Under regulations prescribed by the Secre-
tary, a person who regularly sells or otherwise disposes of 
personal property on the installment plan may return as income 
94 STAT. 2252 
PUBLIC LAW 96-471—OCT. 19, 1980 
therefrom in any taxable year that proportion of the installment 
payments actually received in that year which the gross profit, 
realized or to be realized when payment is completed, bears to 
the total contract price. 
"(2) TOTAL CONTRACT PRICE.—For purposes of paragraph (1), the 
total contract price of all sales of personal property on the 
installment plan includes the amount of carrying charges or 
interest which is determined with respect to such sales and is 
added on the books of account of the seller to the established cash 
selling price of such property. This paragraph shall not apply 
with respect to sales of personal property under a revolving 
credit type plan. 
"(b) CARRYING CHARGES NOT INCLUDED IN TOTAL CONTRACT 
PRICE.—If the carrying charges or interest with respect to sales of 
personal property, the income from which is returned under subsec-
tion (a)(1), is not included in the total contract price, payments 
received with respect to such sales shall be treated as applying first 
against such carrying charges or interest, 
26USC453B. 
SEC. 
453B. GAIN 
OR 
LOSS 
DISPOSITION 
OF 
INSTALLMENT 
OBLIGATIONS. 
"(a) GENERAL RULE.—If an installment obligation is satisfied at 
other than its face value or distributed, transmitted, sold, or other-
wise disposed of, gain or loss shall result to the extent of the 
difference between the basis of the obligation and— 
"(1) the amount realized, in the case of satisfaction at other 
than face value or a sale or exchange, or 
"(2) 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, 
"(b) BASIS OF OBLIGATION.—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. 
"(c) SPECIAL RULE FOR TRANSMISSION AT DEATH.—Except as pro-
26 use 691. 
vided in section 691 (relating to recipients of income in respect of 
decedents), this section shall not apply to the transmission of install-
ment obligations at death. 
"(d) EFFECT OF DISTRIBUTION IN CERTAIN LIQUIDATIONS.— 
26 use 332. 
"(1) LIQUIDATIONS TO WHICH SECTION 332 APPUES.—If— 
"(A) an installment obligation is distributed in a liquida-
tion to which section 332 (relating to complete liquidations of 
subsidiaries) applies, and 
"(B) the basis of such obligation in the hands of the 
26 use 334. 
distributee is determined under section 334(b)(1), 
then no gain or loss with respect to the distribution of such 
obligation shall be recognized by the distributing corporation. 
26 use 337. 
"(2) LIQUIDATIONS TO WHICH SECTION 337 APPUES.—If— 
"(A) an installment obligation is distributed by a corpora-
tion in the course of a liquidation, and 
"(B) under section 337 (relating to gain or loss on sales or 
exchanges in connection with certain liquidations) no gain or 
loss would have been recognized to the corporation if the 
PUBLIC LAW 96-471—OCT. 19, 1980 
94 STAT. 2253 
corporation had sold or exchanged such installment obliga-
tion on the day of such distribution, 
then no gain or loss shall be recognized to such corporation by 
reason of such distribution. The preceding sentence shall not 
apply to the extent that under paragraph (1) gain to the distribut-
ing corporation would be considered as gain to which section 
341(a 617(d)(1), 1245(a), 1250(a), 1251(c), 1252(a), or 1254(a) 26 use 341,617, 
applies. 
J^^^' 1250-1252, 
"(e) LIFE INSURANCE COMPANIES.— 
"(1) IN GENERAL.—In the case of a disposition of an installment 
obligation by any person other than a life insurance company (as 
defined in section 801(a)) to such an insurance company or to a 26 use 801. 
partnership of which such an insurance company is a partner, no 
provision of this subtitle providing for the nonrecognition of gain 
shall apply with respect to any gain resulting under subsection 
(a). If a corporation which is a life insurance company for the 
taxable year was (for the preceding taxable year) a corporation 
which was not a life insurance company, such corporation shall, 
for purposes of this subsection and subsection (a), be treated as 
having transferred to a life insurance company, on the last day of 
the preceding taxable year, all installment obligations which it 
held on such last day. A partnership of which a life insurance 
company becomes a partner shall, for purposes of this subsection 
and subsection (a), be treated as having transferred to a life 
insurance company, on the last day of the preceding taxable year 
of such partnership, all installment obligations which it holds at 
the time such insurance company becomes a partner. 
"(2) SPECIAL RULE WHERE UFE INSURANCE COMPANY ELECTS TO 
TREAT INCOME AS INVESTMENT INCOME.—Paragraph (1) shall not 
apply to any transfer or deemed transfer of an installment 
obligation if the life insurance company elects (at such time and 
in such manner as the Secretary may by regulations prescribe) to 
determine its life insurance company taxable income— 
"(A) by returning the income on such installment obliga-
tion under the installment method prescribed in section 453, Ante, p. 2247. 
and 
"(B) if such income would not otherwise be returnable as 
an item referred to in section 804(b) or as long-term capital 
26 use 804. 
gain, as if the income on such obligations were income 
specified in section 804(b). 
"(f) OBLIGATION BECOMES UNENFORCEABLE.—For purposes of this 
section, if any installment obligation is canceled or otherwise 
becomes unenforceable— 
"(1) the obligation shall be treated as if it were disposed of in a 
transaction other than a sale or exchange, and 
"(2) if the obligor and obligee are related persons (within the 
meaning of section 453(f)(1)), the fair market value of the obliga- Ante, p. 2247. 
tion shall be treated as not less than its face amount.". 
(b) TECHNICAL AMENDMENTS.— 
(1) Section 311(a) and section 336 (as in effect on the day before 26 use 3ii, 336. 
the date of the enactment of the Crude Oil Windfall Profit Tax 
Act of 1980) are each amended by striking out "section 453(d)" 
and inserting in lieu thereof "section 453B . 
Ante, p. 2252. 
(2) Paragraph (8) of section 381(c) is amended— 
26 use 381 
(A) by striking out "has elected, under section 453, to 
report on the installment basis" and inserting in lieu thereof 
"reports on the installment basis under section 453 or 453A", Ant^, pp. 2247, 
and 
2251. 
94 STAT. 2254 
PUBLIC LAW 96-471—OCT. 19, 1980 
Ante, p. 2247. 
(B) by Striking out "for purposes of section 453" and 
inserting in lieu thereof "for purposes of section 453 or 
Ante, p. 2251. 
453A". 
26 use 481. 
(3) Subsection (d) of section 481 is hereby repealed. 
26 use 644. 
(4) Subsection (f) of section 644 is amended by striking out 
"elects to report income under section 453" and inserting in lieu 
thereof "reports income under section 453". 
26 use 691. 
(5) Paragraph (4) of section 691(a) is amended— 
(A) by striking out "received by a decedent on the sale or 
other disposition of property, the income from which was 
properly reportable by the decedent on the installment basis 
under section 453" and inserting in lieu thereof "reportable 
by the decedent on the installment method under section 453 
or453A",and 
(B) by striking out "section 453(d)" each place it appears 
Ante, p. 2252. 
and inserting in lieu thereof "section 453B", 
26 use 1255. 
(6) Paragraph (2) of section 1255(b) is amended by striking out 
"453(d)(4)(B)" and inserting in lieu thereof "453B(d)(2)". 
(c) CONFORMING AMENDMENTS.— 
(1) Subsection (a) of section 336 (as amended by the Crude Oil 
Ante, p. 304. 
Windfall Profit Tax Act of 1980) is amended by striking out 
"section 453(d)" and inserting in lieu thereof "section 453B". 
26 use 337. 
(2) Paragraph (3) of section 337(f) is amended by striking out 
"section 453(d)(1)" and inserting in lieu thereof "section 453B(a)". 
Ante, p. 2252. 
(3) Paragraph (2) of section 453B(d) is amended by adding at the 
end thereof the following new sentence: "In the case of any 
installment obligation which would have met the requirements 
of subparagraphs (A) and (B) of the first sentence of this para-
graph but for section 337(f), gain shall be recognized to such 
corporation by reason of such distribution only to the extent gain 
would have been recognized under section 337(f) if such corpora-
tion had sold or exchanged such installment obligation on the 
date of such distribution.". 
(4) Subparagraph (B) of section 403(b)(2) of the Crude Oil 
Ante, p. 305. 
Windfall Profit Tax Act of 1980 is hereby repealed. 
(d) CLERICAL AMENDMENT.—The table of sections for such subpart B 
is amended by striking out the item relating to section 453 and 
inserting in lieu thereof the following: 
"Sec. 453. Installment method. 
"Sec. 453A. Installment method for dealers in personal property. 
"Sec. 453B. Gain or loss on disposition of installment obligations.". 
26 u s e 691. 
SEC. 3. COORDINATION WITH SECTION 691. 
Subsection (a) of section 691 (relating to income in respect of a 
decedent) is amended by adding at the end thereof the following new 
paragraph: 
"(5) OTHER RULES RELATING TO INSTALLMENT OBUGATIONS.— 
"(A) IN GENERAL.—In the case of an installment obligation 
reportable by the decedent on the installment method under 
Ante, pp. 2247, 
section 453 or 453A, for purposes of paragraph (2)— 
"(i) the second sentence of paragraph (2) shall be 
applied by inserting '(other than the obligor)' after 'or a 
transfer to a person', 
"(ii) any cancellation of such an obligation shall be 
treated as a transfer, and 
"(iii) any cancellation of such an obligation occurring 
at the death of the decedent shall be treated as a 
transfer by the estate of the decedent (or, if held by a 
2251. 
PUBLIC LAW 96-471—OCT. 19, 1980 
94 STAT. 2255 
person other than the decedent before the death of the 
decedent, by such person). 
"(B) FACE AMOUNT TREATED AS FAIR MARKET VALUE IN 
CERTAIN CASES.—In any case to which the first sentence of 
paragraph (2) applies by reason of subparagraph (A), if the 
decedent and the obligor were related persons (within the 
meaning of section 453(f)(1)), the fair market value of the Ante, p. 2247. 
installment obligation shall be treated as not less than its 
face amount. 
"(C) 
CANCELLATION INCLUDES 
BECOMING UNENFORCE-
ABLE.—For purposes of subparagraph (A), an installment 
obligation which becomes unenforceable shall be treated as 
if it were canceled.". 
SEC. 4. AMENDMENT OF SECTION 1038. 
26 USC 1038. 
Section 1038 (relating to certain reacquisitions of real property) is 
amended by adding at the end thereof the following new subsection: 
"(g) ACQUISITION BY ESTATE, ETC., OF SELLER.—Under regulations 
prescribed by the Secretary, if an installment obligation is indebted-
ness to the seller which is described in subsection (a), and if such 
obligation is, in the hands of the taxpayer, an obligation with respect 
to which section 691(a)(4XB) applies, then— 
26 use 691. 
"(1) for purposes of subsection (a), acquisition of real property 
by the taxpayer shall be treated as reacquisition by the seller, 
and 
"(2) the basis of the real property acquired by the taxpayer 
shall be increased by an amount equal to the deduction under 
section 691(c) which would (but for this subsection) have been 
allowable to the taxpayer with respect to the gain on the 
exchange of the obligation for the real property." 
SEC. 5. COORDINATION WITH SECTION 1239. 
Definitions. 
26 USC 1239 
Subsections (b) and (c) of section 1239 (defining related persons) are 
amended to read as follows: 
"(b) RELATED PERSONS.—For purposes of subsection (a), the term 
'related persons' means— 
"(1) the taxpayer and the taxpayer's spouse, 
"(2) the taxpayer and an 80-percent owned entity, or 
"(3) two 80-percent owned entities. 
"(c) 80-PERCENT OWNED ENTITY DEFINED.— 
"(1) GENERAL RULE.—For purposes of this section, the term 
*80-percent owned entity' means— 
"(A) a corporation 80 percent or more in value of the 
outstanding stock of which is owned (directly or indirectly) 
by or for the taxpayer, and 
"(B) a partnership 80 percent or more of the capital 
interest or profits interest in which is owned (directly or 
indirectly) by or for the taxpayer. 
"(2) CONSTRUCTIVE OWNERSHIP.—For purposes of subpara-
graphs (A) and (B) of paragraph (1), the principles of section 318 26 use 318. 
shall apply, except that— 
"(A) the members of an individual's family shall consist 
only of such individual and such individual's spouse, and 
"(B) paragraphs (2)(C) and (3XC) of section 318(a) shall be 
applied without regard to the 50-percent limitation con-
tained therein.". 
79-194 
O—81—pt. 2 
62 : QL3 
94 STAT. 2256 
PUBLIC LAW 96-471—OCT. 19, 1980 
SEC. 6. EFFECTIVE DATES. 
26 u s e 453 note. 
(a) FOR SECTIONS 2 AND 5.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by sections 2 and 5 shall apply to 
dispositions made after the date of the enactment of this Act in 
taxable years ending after such date. 
Ante, p. 2247. 
(2) FoR S
E
C
T
I
O
N 453(e).—Section 453(e) of the Internal Revenue 
Code of 1954 (as amended by section 2) shall apply to first 
dispositions made after May 14,1980. 
(3) FOR SECTION 453(h).—Paragraphs (1) and (2) of section 453(h) 
of such Code (as amended by section 2) shall apply in the case of 
distributions of installment obligations after March 31, 1980. 
Ante, p. 2251. 
(4) FoR S
E
C
T
I
O
N 453A.—Section 453A of the Internal Revenue 
Code of 1954 (as amended by section 2) shall apply to taxable 
years ending after the date of enactment of this Act. 
Ante, p. 2252. 
(5) FoR S
E
C
T
I
O
N 453B(f).—Section 453B(0 of the Internal Reve-
nue Code of 1954 (as amended by section 2) shall apply to 
installment obligations becoming unenforceable after the date of 
the enactment of this Act. 
(6) FOR SECTION 2(c).—The amendments made by section 2(c) 
shall take effect as if included in the amendments made by 
Ante, p. 304. 
soction 403(b) of the Crude Oil Windfall Profit Tax Act of 1980. 
(7) SPECIAL RULE FOR APPUCATION OF FORMER SECTION 453 TO 
C
E
R
T
A
I
N DISPOSITIONS.—In the case of any disposition made on or 
before the date of the enactment of this Act in any taxable year 
ending after such date, the provisions of section 453(b) of the 
Ante, p. 2247. 
Internal Revenue Code of 1954, as in effect before such date, shall 
be applied with respect to such disposition without regard to— 
(A) paragraph (2) of such section 453(b), and 
(B) any requirement that more than I payment be 
received. 
26 use 691 note. 
(b) FoR S
E
C
T
I
O
N 3.—The amendment made by section 3 shall apply 
in the case of decedents dying after the date of the enactment of this 
Act. 
2
6 use 1038 
(c) FOR SECTION 4.—The amendment made by section 4 shall apply 
^°^- 
to acquisitions of real property by the taxpayer after the date of the 
enactment of this Act. 
Approved October 19, 1980. 
LEGISLATIVE HISTORY: 
HOUSE REPORT No. 96-1042 (eomm. on Ways and Means). 
SENATE REPORT No. 96-1000 (Oomm. on Finance). 
eONGRESSIONAL RECORD, Vol. 126 (1980): 
June 17, considered and passed House. 
Oct. 1, considered and passed Senate, amended. 
Oct. 2, House concurred in Senate amendments. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 16, No. 43: 
Oct. 20, Presidential statement.