Not Completed Contract Method
I was reading George Yeiter's website today and he has a special report entitled "How Dealers Can Defer Taxes When Taking Back Paper." I figured this would be interesting since I will be buying houses subject to and selling on CFD, basically John Locke's system, and I will be classified as a dealer probably. The little blurb about it says that the way to get around this is using the Not Completed Contract Method. It says, "If the facts are right, a dealer can sell a house, take back paper and defer paying taxes until the contract is considered complete." Can anyone shed any light on what this method is? I ordered the report, so I will find out soon enough but I was wondering if anyone has heard of it here.
Thanks!
Although I have nothing to add, I would like to express my interest in this as well.
This sounds like a very aggressive tax strategy, and I wonder whether it has been tested in Tax Court for dealers to real estate selling on Contract For Deed.
Percentage of completion accounting and completed contract accounting are quite common in the Construction industry. The completed contract method of accounting is appropriate when insufficient historical experience results in the inability to provide reasonably dependable estimates of the revenues and costs applicable to the various stages of a construction contract.
The completed-contract method of accounting is often used for long-term construction-type contracts when the amount and timing of future cash flows is uncertain.
When there is sufficient historical experience and the ability to provide reasonable estimates of the income and expenses allocated to each stage of the contract, then the percentage of completion method is most often used.
I am not certain that the IRS will permit a cash basis reporting taxpayer to use the completed-contract method of accounting in a Contract for Deed situation when your income stream is dictated by your amortization schedule.
I will wait and see.
Dave,
Although we've had some conflicting opinions in the past, I'm curious...what is your background in the tax strategy/accounting field? You seem very knowlegable.
Well, like I said, I bought the special report from Yeiter's website, so I will report back when I learn something. But he says that "the report gives you and your tax counsel the logic, the law and even references to the law and court cases to back up this position for you." It will be interesting to find out if the court cases are actually cases that dealt with Contract for Deed.
myfrogger,
I have no formal training and no professional experience in either taxes or accounting. I have acknowledged in other posts that I am not a tax professional, CPA, or lawyer.
Everything I know today is self-acquired knowledge from years of doing my own income taxes in my investment career. My direct experience is limited to personal income taxes, so I defer to others when questions involving corporate tax treatment crop up.
Recognizing the limited scope of my knowledge and experience, I have tried to encourage and enlist the support of tax professionals actually working in the field. For awhile taxjunkie and thowell were contributing to this forum but for some reason they are not currently active contributers in these forums.[ Edited by DaveT on Date 12/19/2003 ]
Hello Dave T
I am back from traveling and will be active in the forum from now on. I also must commend you on your answers. You provide more detail and easier to understand explanations than most all accountants I have encountered. Sometimes the designation is not the best way to determine competancy. Keep up the good work.
Tom,
Welcome back. We have missed you.
Your presence on the site will be a real strength in the Tax Strategies Forums.
Dave