Structured Installment Sales: A Safer, Cleaner Way to Defer Capital Gains Taxes
If you’re selling highly appreciated real estate, a business, or other investment assets, your single biggest line item may not be the sales commission or legal fees—it’s the capital gains tax bill.
It’s no surprise that sellers have been pitched all kinds of tax-deferral strategies in recent years: Deferred Sales Trusts, “monetized installment sales,” complex non-grantor trusts, and more. At the same time, the IRS has been very public about cracking down on aggressive deferral schemes—especially those that rely on circular loans and complicated trust structures.
If you want deferral with less drama, there’s a simpler option grounded in long-standing law:
A Structured Installment Sale (sometimes called a “structured sale” or “structured installment sale annuity”) uses the basic installment sale rules in IRC §453 to spread out your gain and your payments over time—without loans back to you or exotic trust structures.
This article explains how a Structured Installment Sale works, how it differs from strategies like Deferred Sales Trusts, and when it might be worth considering for your sale.
Important: This article is for general information only and is not legal, tax, or investment advice. You should review your specific situation with your own CPA and attorney before implementing any strategy.
Why Capital Gains Deferral Is Under the Microscope
For years, high-income taxpayers have used legitimate tools like 1031 exchanges, charitable planning, and installment sales to manage capital gains. More recently, some promoters have pushed highly engineered deferral strategies that go well beyond the basics.
IRS focus on “monetized” and complex trust strategies
In 2023, the Treasury and IRS issued proposed regulations (REG-109348-22) designating monetized installment sale transactions—and substantially similar deals—as listed transactions, a special category of abusive tax transactions that trigger strict disclosure requirements and potential penalties.
At the same time, the IRS has:
Pursued enforcement actions related to Deferred Sales Trust arrangements, including a federal court case to enforce a summons on a DST promoter.
Issued Chief Counsel Memorandum AM 2023-006, warning about misleading claims involving certain non-grantor, irrevocable, complex trusts used for tax deferral.
In short: the IRS is paying close attention to structures that look like installment sales on paper but, in substance, give the seller immediate access to the cash or route gains into complex trusts with aggressive tax positions.
That doesn’t mean all advanced strategies are illegal. It does mean that if you use them, you’re stepping into an area of heightened scrutiny.
What Exactly Is a Structured Installment Sale?
A Structured Installment Sale (SIS) is built on a straightforward concept:
Instead of taking all of your sale proceeds in a lump sum and paying tax on all the gain in that year, you agree to receive the proceeds over time in installments. Those installments are then “structured” and funded—usually through a high-quality annuity or funding agreement—by a third-party assignment company.
It’s still an installment sale under IRC §453. The structure is simply designed to:
Provide predictable payments (often guaranteed by a major life insurance company), and
Reduce the risk that the buyer defaults on future payments.
Traditional installment sale vs. Structured Installment Sale
Traditional §453 installment sale:
You, the seller, finance part of the sale.
The buyer pays you over time according to your agreement.
You bear the risk that the buyer can’t or won’t pay.
You and the buyer remain contractually tied for years.
Structured Installment Sale:
You still agree to receive payments over time.
The buyer’s payment obligation is assigned to an independent “assignment company.”
The buyer pays the full purchase price (or the deferred portion) to that company.
The assignment company purchases an annuity or funding agreement designed to make payments to you on a fixed schedule.
You report gain under §453 as payments are received, just as you would with a normal installment sale, assuming the structure follows the tax rules.
This is not a loan back to you, and it doesn’t rely on a discretionary trust claiming special treatment. It’s simply an installment sale funded in a very institutional, structured way.
How a Structured Installment Sale Works (Step by Step)
Every transaction is unique, but a typical Structured Installment Sale might look like this:
1. You negotiate the sale and choose to structure part of the price
You and the buyer agree on:
The purchase price,
How much you’ll take up front (if any), and
How much will be deferred and structured over time.
At this point, it’s critical that the structured component is baked into the original purchase agreement. You generally cannot sell, receive all cash, and then “retrofit” a structured sale after the fact.
2. The buyer’s obligation is assigned to an independent company
The buyer’s obligation to make the future installment payments is transferred to an independent assignment company (often affiliated with a major insurer). The buyer then pays the purchase price (or the deferred portion) to that company.
From the buyer’s perspective, they’ve bought the asset and paid the agreed-upon price. They’re done.
3. The assignment company funds an annuity or similar asset
The assignment company uses those funds to purchase an annuity or funding agreement from a highly rated life insurance company. That annuity is designed to match the payment schedule you selected:
Monthly, quarterly, or annual payments
Fixed term (for example, 10, 15, 20 years)
Lifetime payments in some cases (subject to product availability and underwriting)
4. You receive scheduled payments—and recognize gain over time
You receive installment payments on the schedule you chose. Because this is an installment sale under §453 (when properly structured):
Each payment generally consists of return of basis + capital gain (and possibly interest), and
You typically pay capital gains tax only as the gain portion of each payment is received, not all in the year of sale.
The details depend heavily on your own basis, the character of the gain, and the exact structure, so it’s essential to involve your own tax advisor.
Structured Installment Sales vs. Deferred Sales Trusts (DSTs)
You may have heard about Deferred Sales Trusts (DSTs) as another §453-based strategy to defer capital gains. While the acronym sounds similar to Delaware Statutory Trusts used in 1031 exchanges, a Deferred Sales Trust is a different, promoted strategy built around selling to a special trust on installment, then having that trust resell the asset to the buyer.
We’re not going to unpack every variation here, but there are a few key distinctions:
1. Complexity of structure
Deferred Sales Trusts typically rely on a non-grantor, irrevocable, discretionary trust that buys from you on installment and then resells. The trust often invests broadly on your behalf, and promoters sometimes claim it can significantly alter the timing or character of income.
A Structured Installment Sale keeps things closer to the classic installment sale model: you sell directly, the buyer’s obligation is assigned to an institutional company, and that company funds an annuity or similar product to pay you over time.
2. IRS scrutiny and controversy
Certain Deferred Sales Trust arrangements have been dragged into court and IRS enforcement actions, and are often mentioned alongside other “promoted” tax strategies.
The IRS has also issued guidance (such as AM 2023-006) raising concerns about non-grantor complex trusts marketed with aggressive tax claims.
By contrast, Structured Installment Sales are typically described by practitioners as a straightforward application of §453 that doesn’t involve monetization loans, circular cash flows, or discretionary trust structures.
To be clear: the IRS has not issued a blanket statement that “all Deferred Sales Trusts are illegal.” But where a structure is heavily marketed, uses complex trusts, and promises unusually favorable tax results, taxpayers should expect more questions.
3. Economic substance and audit story
One practical way to think about it:
With a Structured Installment Sale, your audit story sounds like:
“I sold my property under §453, and chose to receive payments over time through a third-party assignment/annuity arrangement.”With some Deferred Sales Trust structures, the story can become:
“I sold to my own trust, it immediately resold, the cash is effectively available to me, and a trust taxed as a separate entity is somehow sheltering the gain.”
The more complicated the story, the more likely you are to draw attention.
At Cutler | Riley, we generally prefer Structured Installment Sales for clients who want deferral without the added complexity and controversy associated with some DST implementations.
Benefits of a Structured Installment Sale
A Structured Installment Sale isn’t right for everyone, but when it fits, it can check several boxes at once.
1. Capital gains tax deferral
The core benefit is deferring capital gains under §453:
You avoid reporting the entire gain in a single tax year.
You spread recognition over the term of the payments.
In some cases, this can keep you in a lower tax bracket, reduce exposure to Net Investment Income Tax (NIIT), or avoid phase-outs and surtaxes that would have applied if all the gain landed in one year.
Deferral is not elimination—you’ll still owe tax as payments are received—but timing can be very powerful.
2. Predictable, long-term income stream
Because the assignment company typically funds an annuity or similar contract, you can design a payment stream that supports your goals:
A “retirement paycheck” after selling a business
Steady income to replace cash flow from rental properties
Laddered payments that increase or decrease over time
Income earmarked for college, missions, or other long-term family goals
For many sellers, turning a big, one-time, taxable sale into a planned income stream is just as important as the tax benefits.
3. Reduced credit risk
In a traditional installment sale, if the buyer defaults, you’re left chasing them—and possibly trying to get the property back.
In a Structured Installment Sale, the buyer’s obligation is transferred to an assignment company supported by a highly rated life insurance carrier, and the payment stream is backed by the underlying annuity or funding agreement.
You still need to evaluate the strength of the issuer, but you’re not betting on a single buyer’s business plan for the next 10–20 years.
4. Flexible design (within reason)
Within product constraints, you can often customize:
Payment start date (immediate vs. deferred)
Payment frequency
Term vs. lifetime payments
Level payments vs. step-ups
You cannot just pull all the cash out whenever you feel like it—that would defeat the point of the structure and could jeopardize deferral. But you do get significant flexibility at the design stage.
5. Estate and financial planning advantages
A Structured Installment Sale can also integrate neatly with your broader plan:
You may pair it with trusts (e.g., revocable living trust or other planning vehicles) that receive the payments.
The predictable income stream can simplify retirement projections, gifting strategies, and wealth transfer planning.
It can work alongside other tools like life insurance, qualified plans, or charitable giving.
As always, you’ll want your estate planning attorney and financial planner in the loop.
Who Is a Good Candidate for a Structured Installment Sale?
While every situation is unique, sellers who might benefit include:
Owners of closely held businesses
Selling a professional practice, medical/dental practice, or local business in Utah
Wanting retirement income rather than a single lump sum
Real estate investors
Selling appreciated investment property (especially if a 1031 exchange is impractical or undesirable)
Landlords looking to exit active management but keep income
Farm and ranch owners
Transitioning land or operations to new owners
Needing a predictable income stream for retirement or succession
Long-term investors in concentrated positions
Large gain in a single asset where a planned payout schedule is more attractive than one-time cash
A Structured Installment Sale may be less suitable if:
You need all or most of the cash immediately (for example, to pay off debt or invest in a new opportunity right away).
Your gain is relatively small, so the administrative cost and complexity don’t justify the benefits.
You’re already using other strategies (like a 1031 or charitable planning) that better fit your goals.
Compliance, Risk Management, and the IRS
One of the main reasons we favor Structured Installment Sales over flashier alternatives is risk management.
1. Aligned with the core of §453
Structured sales use the same general installment sale framework CPAs have been working with for decades—you simply assign the buyer’s obligation to an institutional obligor that funds an annuity or similar investment.
They do not require:
Loans back to you that “monetize” the installment stream immediately, or
Highly aggressive positions about how a complex trust can magically change the character or timing of income.
2. Avoiding “monetized installment sale” traps
Given that the IRS is actively working to classify monetized installment sales as listed transactions, we are very careful to avoid any structure that could be viewed as substantially similar, such as circular flows of cash that effectively hand you the sales proceeds right away while pretending you haven’t really received them.
With a Structured Installment Sale:
You accept that deferral comes with illiquidity—you can’t have all the cash immediately and still claim you didn’t receive it.
You focus on clear, defensible economic substance: an installment sale with a long-term, institutionally funded payment obligation.
3. Documentation and professional advice matter
To keep things on solid ground, we strongly recommend:
Involving your CPA early in the planning process.
Ensuring your purchase and assignment documents are aligned and properly executed.
Using reputable, financially strong assignment and annuity providers.
Keeping thorough documentation of your basis, holding period, and gain calculations.
At Cutler | Riley, we serve as part of your professional team—working hand-in-hand with your CPA and financial advisor rather than replacing them.
Frequently Asked Questions About Structured Installment Sales
Is a Structured Installment Sale a “tax loophole”?
No. A Structured Installment Sale is simply a way of using existing installment sale rules under §453 to spread out your payments and gain over time. When the structure is done correctly, you are following the law, not dodging it.
How is this different from a Deferred Sales Trust?
In very short form:
A Structured Installment Sale:
You sell your asset; the buyer’s obligation is assigned to an institutional company; that company funds an annuity to pay you over time.
A Deferred Sales Trust:
You typically sell first to a specially created trust on installment, which then resells to the ultimate buyer, and the trust invests the proceeds.
Some DST variations have drawn IRS and court attention, and involve more complex trust and tax positions. Structured Installment Sales are generally viewed as more conservative and easier to explain if questions arise.
Will I still owe tax?
Yes. A Structured Installment Sale defers and spreads out your capital gain; it does not erase it. You’ll generally recognize gain over the term of the contract as you receive payments, and you’ll owe tax accordingly.
Can I take some cash up front?
Often, yes. Many sellers choose a hybrid approach:
A portion up front (fully taxable in year 1), and
The remainder structured over time.
Your tax advisor can help you model different scenarios to hit the right balance between cash now and deferral.
Can I change my mind later and cash out?
Usually not, at least not without potentially compromising the tax treatment. The irrevocable nature of the payment schedule is part of what supports the installment sale structure and deferral. If total flexibility to cash out whenever you want is your top priority, a Structured Installment Sale may not be the right fit.
How Cutler | Riley Helps Utah Sellers Evaluate Structured Installment Sales
At Cutler | Riley, PLLC, we work with business owners, investors, and families throughout Utah who are facing major liquidity events—selling a business, transitioning investment property, or unwinding a long-held position.
When a client asks how to manage the tax hit and create a smart income plan, we typically:
Listen carefully to your goals
Retirement timing
Cash needs
Family and estate objectives
Risk tolerance
Compare the main options
Straight sale + planning around the gain
1031 exchange (if real estate and appropriate)
Charitable tools (CRT, donor-advised funds, etc.)
Traditional installment sale or Structured Installment Sale
Only then, if appropriate, more complex trust-based strategies—with full disclosure of risks
Model the numbers with your CPA
Show what your after-tax situation may look like with and without a Structured Installment Sale
Evaluate the projected cash flows from different payment designs
Coordinate implementation
Work with the buyer’s counsel and the assignment/annuity providers
Ensure your sale documents reflect the structure correctly
Integrate the payment stream with your estate plan and revocable trust
Our goal is not to sell you a product. It’s to help you choose a clear, defensible path that aligns with your long-term goals—and to keep you out of the IRS’s “Dirty Dozen” crosshairs.
Thinking About Selling a Business or Property in Utah?
If you’re considering selling appreciated real estate, a closely held business, or other investment assets and you’re worried about the tax bill, a Structured Installment Sale may be worth exploring.
We can help you:
Understand the strategy in plain English
Compare it honestly to alternatives like 1031 exchanges and Deferred Sales Trusts
Coordinate with your CPA and financial advisor
Implement a structure that prioritizes both tax efficiency and peace of mind
Schedule a consultation with Cutler | Riley to discuss whether a Structured Installment Sale fits your situation and how it might support your broader estate and financial plan.
Curious whether a Structured Installment Sale is worth it for your deal?
Use our quick calculator to compare your after-tax outcome if you pay capital gains now versus using an Installment Sale Structure with interest-only payments and a balloon at the end of your chosen term (5/10/15/20 years). It automatically factors in the DST setup fee—1% with a $2,500 minimum and $10,000 cap—so you get an apples-to-apples projection. Enter your numbers and see, in seconds, if an Installment Sale Structure makes financial sense for you.