Cash method taxpayer must realize gain/loss on sale of stock in year of trade.

For Federal income tax purposes, gain or profit from qualifying installment sales of property may be reported under the installment method. An installment sale is a disposition of property in which at least one payment is received after the close of the tax year in which the disposition occurs. Although an installment sale must have at least one payment received in a tax year after the year of sale, there is no requirement that there be more than one payment. Sec. 453 further provides that the installment method will not apply to any disposition if the taxpayer elects not to have Sec. 453 apply. A taxpayer who elects not to report income from an installment sale on the installment method must recognize gain in accordance with the taxpayer's method of accounting.

In Rev. Rul. 93-84, a cash method, calendar-year taxpayer who sold stock traded on an established securities market in 1992, and did not receive the proceeds of the sale until early 1993, was required to report the gain or loss in 1992. In the past, this type of transaction qualified for installment sale treatment and was commonly used by taxpayers to choose the year a gain would be recognized for tax purposes by electing out of (or choosing to remain under) the installment rules of Sec. 453. The Tax Reform Act of 1986 (TRA) added Sec. 453(k), which requires that income and loss on publicly traded securities be recognized in the year of disposition (trade date).

In Rev. Rul. 93-84, the taxpayer held stock traded on an established securities market for several years. On Dec. 31, 1992, the taxpayer contacted a broker and placed a regular-way sale order on the stock. The broker executed the trade on the same day (the "trade date"). The taxpayer delivered the stock certificates to the broker and the broker delivered the proceeds of the sale to the taxpayer on Jan. 8, 1993 (the "settlement date").

Sec. 453(k) provides that any installment obligation arising out of a sale of stock or securities traded on an established securities market is not eligible for the installment method of reporting income under Sec. 453(a), and all payments to be received will be treated as received in the year of disposition. The TRA Senate Report stated that for sales made on an established market, if cash settlement of transactions customarily occurs several business days after the date on which a trade is made, gain or loss will be recognized for Federal income tax purposes by both cash and accrual method taxpayers on the date the trade is executed.

Accordingly, the year of disposition of a sale of stock or securities traded on an established securities market is the year that includes the trade date. Therefore, the taxpayer may not report the gain from the sale of the stock under the installment method but must recognize and report any gain or loss in 1992, the year in which the trade date falls.

As a result of Rev. Rul. 93-84, the following rulings were obsoleted.

* Rev. Rul. 82-227: gain realized on the sale of stock was eligible for treatment under the installment method of accounting.

* Rev. Rul. 78-270: gain from the sale of stock was taxable in the year the sale proceeds were received.

* Rev. Rul. 70-344: losses resulting from the sale of stocks and bonds were recognized in the year of sale rather than the year of delivery.