US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 453B

Gain or loss on disposition of installment obligations

(a)

General rule

If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold, or otherwise 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 provided in section 691 (relating to recipients of income in respect of decedents), this section shall not apply to the transmission of installment obligations at death.

(d)

Exception for distributions to which section 337(a) applies

Subsection (a) shall not apply to any distribution to which section 337(a) applies.

(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 816(a)) to such an insurance company or to a 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 life insurance company elects to treat income as not related to insurance business

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 obligation under the installment method prescribed in section 453, and
(B)
as if such income were an item attributable to a noninsurance business.
(3)

Noninsurance business

(A)

In general

For purposes of this subsection, the term “noninsurance business” means any activity which is not an insurance business.

(B)

Certain activities treated as insurance businesses

For purposes of subparagraph (A), any activity which is not an insurance business shall be treated as an insurance business if—
(i)
it is of a type traditionally carried on by life insurance companies for investment purposes, but only if the carrying on of such activity (other than in the case of real estate) does not constitute the active conduct of a trade or business, or
(ii)
it involves the performance of administrative services in connection with plans providing life insurance, pension, or accident and health benefits.
(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 obligation shall be treated as not less than its face amount.
(g)

Transfers between spouses or incident to divorce

In the case of any transfer described in subsection (a) of section 1041 (other than a transfer in trust)—
(1)
subsection (a) of this section shall not apply, and
(2)
the same tax treatment with respect to the transferred installment obligation shall apply to the transferee as would have applied to the transferor.
(h)

Certain liquidating distributions by S corporations

If—
(1)
an installment obligation is distributed by an S corporation in a complete liquidation, and
(2)
receipt of the obligation is not treated as payment for the stock by reason of section 453(h)(1),
then, except for purposes of any tax imposed by subchapter S, no gain or loss with respect to the distribution of the obligation shall be recognized by the distributing corporation. Under regulations prescribed by the Secretary, the character of the gain or loss to the shareholder shall be determined in accordance with the principles of section 1366(b).

Pub. L. 96–471, § 2(a)94 Stat. 2252Pub. L. 96–471, § 2(c)(3)94 Stat. 2254Pub. L. 97–448, title III, § 30296 Stat. 2398Pub. L. 98–369, div. A, title I, § 43(c)(2)98 Stat. 558Pub. L. 99–514, title VI, § 631(e)(9)100 Stat. 2274Pub. L. 100–647, title I, § 1006(e)(22)102 Stat. 3403Pub. L. 101–508, title XI, § 11702(a)(2)104 Stat. 1388–514Pub. L. 115–97, title I, § 13512(b)(1)131 Stat. 2142Pub. L. 115–141, div. U, title IV, § 401(a)(111)132 Stat. 1189(Added , , ; amended , , ; , , ; , title II, § 211(b)(6), title IV, §§ 421(b)(3), 492(b)(3), , , 754, 794, 854; , title X, § 1011(b)(1), title XVIII, § 1842(c), , , 2389, 2853; , , ; , , ; , , ; , , .)

Editorial Notes

Prior Provisions

section 453 of this titleProvisions similar to those comprising this section were contained in former .

Amendments

Pub. L. 115–1412018— substituted “loss on disposition” for “loss disposition” in section catchline.

Pub. L. 115–97, § 13512(b)(1)(A)2017—Subsec. (e)(2)(B). , struck out “(as defined in section 806(b)(3))” before period at end.

Pub. L. 115–97, § 13512(b)(1)(B)Subsec. (e)(3). , added par. (3).

Pub. L. 101–5081990—Subsec. (d). substituted heading for one which read: “Effect of distribution in liquidations to which section 332 applies” and amended text generally. Prior to amendment, text read as follows: “If—

“(1) an installment obligation is distributed in a liquidation to which section 332 (relating to complete liquidations of subsidiaries) applies, and

“(2) the basis of such obligation in the hands of the 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.”

Pub. L. 100–6471988—Subsec. (h). added subsec. (h).

Pub. L. 99–514, § 631(e)(9)1986—Subsec. (d). , amended subsec. (d) generally, substituting “liquidations to which section 332 applies” for “certain liquidations” in heading, striking out par. (1) designation, redesignating subpars. (A) and (B) as pars. (1) and (2), and striking out former par. (2) relating to liquidations to which section 337 applies.

Pub. L. 99–514, § 1011(b)(1)Subsec. (e)(2)(B). , substituted “section 806(b)(3)” for “section 806(c)(3)”.

Pub. L. 99–514, § 1842(c)Subsec. (g). , inserted “(other than a transfer in trust)”.

Pub. L. 98–369, § 492(b)(3)1984—Subsec. (d)(2). , struck out “1251(c),” after “1250(a),” in provision following subpar. (B).

Pub. L. 98–369, § 43(c)(2), substituted “1254(a), or 1276(a)” for “or 1254(a)”.

Pub. L. 98–369, § 211(b)(6)(A)Subsec. (e)(1). , substituted “section 816(a)” for “section 801(a)”.

Pub. L. 98–369, § 211(b)(6)(B)Subsec. (e)(2). , substituted “as not related to insurance business” for “as investment income” in heading, and in text substituted “as if such income were an item attributable to a noninsurance business (as defined in section 806(c)(3))” for “if such income would not otherwise be returnable as an item referred to in section 804(b) or as long-term capital gain, as if the income on such obligations were income specified in section 804(b)”.

Pub. L. 98–369, § 421(b)(3)Subsec. (g). , added subsec. (g).

Pub. L. 97–4481983—Subsec. (d)(2). substituted “under subsection (a)” for “under paragraph (1)” in second sentence.

Pub. L. 96–471, § 2(c)(3)1980—Subsec. (d). , inserted last sentence providing that in the case of any installment obligation which would have met the requirements of subpars. (A) and (B) of par. (2) but for sections 337(f), gain shall be recognized to such corporation by reason of such distribution only to the extent gain would have been recognized under sections 337(f) if such corporation had sold or exchanged such installment obligation on the date of such distribution.

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Pub. L. 115–97, title I, § 13512(c)131 Stat. 2143

section 806 of this title“The amendments made by this section [amending this section and sections 465, 801, 804, 805, 842, and 953 of this title and repealing ] shall apply to taxable years beginning after .”
, , , provided that:

Effective Date of 1990 Amendment

Pub. L. 101–508Pub. L. 100–647section 11702(j) of Pub. L. 101–508section 59 of this titleAmendment by effective as if included in the provision of the Technical and Miscellaneous Revenue Act of 1988, , to which such amendment relates, see , set out as a note under .

Effective Date of 1988 Amendment

Pub. L. 100–647Pub. L. 99–514section 1019(a) of Pub. L. 100–647section 1 of this titleAmendment by effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, , to which such amendment relates, see , set out as a note under .

Effective Date of 1986 Amendment

section 631(e)(9) of Pub. L. 99–514section 338 of this titlesection 633 of Pub. L. 99–514section 336 of this titleAmendment by applicable to any distribution in complete liquidation, and any sale or exchange, made by a corporation after , unless such corporation is completely liquidated before , any transaction described in for which the acquisition date occurs after , and any distribution, not in complete liquidation, made after , with exceptions and special and transitional rules, see , set out as an Effective Date note under .

Pub. L. 99–514, title X, § 1011(c)(1)100 Stat. 2389

section 801 of this titlesection 806 of this title“The amendments made by this section [amending this section and sections 465, 801, 804 to 806, 813, and 815 of this title, enacting provisions set out as a note under , and amending provisions set out as a note under ] shall apply to taxable years beginning after .”
, , , provided that:

section 1842(c) of Pub. L. 99–514Pub. L. 98–369, div. Asection 1881 of Pub. L. 99–514section 48 of this titleAmendment by effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, , to which such amendment relates, see , set out as a note under .

Effective Date of 1984 Amendment

section 43(c)(2) of Pub. L. 98–369section 44 of Pub. L. 98–369section 1271 of this titleAmendment by applicable to taxable years ending after , see , set out as an Effective Date note under .

section 211(b)(6) of Pub. L. 98–369section 215 of Pub. L. 98–369section 801 of this titleAmendment by applicable to taxable years beginning after , see , set out as an Effective Date note under .

section 421(b)(3) of Pub. L. 98–369section 421(d) of Pub. L. 98–369section 1041 of this titleAmendment by applicable to transfers after , in taxable years ending after such date, subject to election to have amendment apply to transfers after 1983 or to transfers pursuant to existing decrees, see , set out as an Effective Date note under .

section 492(b)(3) of Pub. L. 98–369section 492(d) of Pub. L. 98–369section 170 of this titleAmendment by applicable to taxable years beginning after , see , set out as a note under .

Effective Date of 1983 Amendment

Pub. L. 97–448section 311(a) of Pub. L. 97–448section 453 of this titleAmendment by applicable to dispositions made after , in taxable years ending after such date, see , set out as a note under .

Effective Date of 1980 Amendment

Pub. L. 96–471section 6(a)(6) of Pub. L. 96–471section 453 of this titleFor effective date of amendment by , see , set out as an Effective Date note under .

Effective Date

Pub. L. 96–471section 453 of this titleFor effective date, see section 6(a)(1), (5) of , set out as a note under .

Repeal of Modification of Installment Method

Pub. L. 106–573, § 2114 Stat. 3061

“(a)

In General .—

Pub. L. 106–170Subsection (a) of section 536 of the Ticket to Work and Work Incentives Improvement Act of 1999 (relating to modification of installment method and repeal of installment method for accrual method taxpayers) [, amending this section] is repealed effective with respect to sales and other dispositions occurring on or after the date of the enactment of such Act [].
“(b)

Applicability .—

The Internal Revenue Code of 1986 shall be applied and administered as if that subsection (and the amendments made by that subsection) had not been enacted.”
, , , provided that:

Plan Amendments Not Required Until January 1, 1989

Pub. L. 99–514section 1140 of Pub. L. 99–514section 401 of this titleFor provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after , see , as amended, set out as a note under .

Treatment of Elections Under Section 453B(e)(2)

Pub. L. 98–369, div. A, title II, § 217(b)98 Stat. 762Pub. L. 99–514, § 2100 Stat. 2095

“If an election is made under section 453B(e)(2) before , with respect to any installment obligation, any income from such obligation shall be treated as attributable to a noninsurance business (as defined in [former] section 806(c)(3) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]).”
, , , as amended by , , , provided that: