USA Installment Sale - Decrease in Gross Profit


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Hi All! I hope everyone is staying well through this tough time. I have a situational tax question and am hoping for some guidance from this group of experienced accountants.

I have a client who sold their business in 2014 via an installment sale reported on Form 6252. However, as years went on the sales price decreased due to certain stipulations not being met by the sellers. Accordingly, the gross profit was adjusted in subsequent years. In 2019 the Company that bought out my client was ultimately sold itself and now this installment agreement is not going to be paid. Therefore, I’d like to reduce the gross profit to what has actually been collected/reported thus far. Meaning, the client has significantly overpaid tax on these installments since the gross profit has decreased. So, the issue arises now that they are due a significant amount of tax back and should be able to recognize a loss however this isn’t possible with Form 6252 and the loss is limited to $3,000 annually. The statute has expired for the 2014 tax return to adjust the initial installment sale. Any thoughts on how to retrieve the monies that are rightfully due to the taxpayer by no fault of their own in this installment agreement? Recognizing a $3,000 annually would never fulfill the true loss. Any recommendations would be appreciated.
 
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kirby

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For one thing, if the company that bought out your client was sold itself and "now this installment agreement is not going to be paid."
You need legal counsel to pursue the unpaid amount. Read IRS Topic 453 Bad Debt Deduction
 
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Hey RRAOcpa, Have you found the solution to this question? Let's state it another way and maybe someone can help . Client sold business for $895k in 2018 via installment sale with $500k payment in 2018 and $245k payment due in 2019. GP% was 13.2%.
Buyer defaulted, did not pay in 2019 and they then settled on a reduced amount due of $225k and called it good. So the question is: Can we amend the 2018 tax return to show the reduced GP% (now 2.8%)? Or? Thank you Forum Folks!
 

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