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TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

Is future income from a promissory note all taxable in the year the note was issued?

When we sold our business we signed a promissory note with the buyers for a portion of the purchase price with a 15 year payback at 6% interest. Our accountant told us that we must pay taxes on the full amount of the note even though we will receive the income over 15 years. Seems unfair to have taxation BEFORE compensation. Is this right?

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One thought on “TaxConnections Tax Professionals – Can You Help With This Question Of The Week?

  1. Charles Crane says:

    It’s possible that tax would need to be paid on the full amount but its the full amount of the gain that you would be paying tax on and note the promissory note itself. An example is where there is a sale of business that has lots of fixed assets that have been depreciated over past years as § 1245 property. To the extent that there is depreciation recapture under § 1245, the gain up to the amount of depreciation recapture would be recognized as taxable income in year of sale even if the purchase price is paid over a long period of time.

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