Tax Practice Partner David Slenn says while some tax planners may raise alarms about a recent IRS Answer filed in a pending U.S. Tax Court case involving an IRS challenge to monetized installment sales, few will be affected. A California contractor, developer, and builder is challenging the IRS’s application of the codified economic substance doctrine to monetized installment sales after his transaction was included on the IRS's "Dirty Dozen" list of potential tax scams.

Slenn told leading tax publication Tax Notes that while some estate planners may argue the IRS's stance will hurt legitimate installment sales, transactions involved in regular estate planning share little in common with the one in question.

“The IRS’s answer gives everyone an idea of what the IRS is going after—and it’s not the run-of-the-mill installment sale used in estate planning,” Slenn told Tax Notes.

Slenn also noted the dearth of case law involving application of the 40% Section 6662(i) penalty, for failure to disclose a noneconomic substance transaction. “While public attention is focused on the IRS’s attempt to draw a line as to what it finds abusive with [monetized installment sales]—which will be relevant for notice and comment rulemaking associated with the reportable transaction—few may take note of the IRS’s attempt to develop a penalty that has much broader application to noneconomic substance transactions,” Slenn said.

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