[Code of Federal Regulations]
[Title 26, Volume 8]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.691(a)-5]

[Page 334-335]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.691(a)-5  Installment obligations acquired from decedent.

    (a) Section 691(a)(4) has reference to an installment obligation 
which remains uncollected by a decedent (or a

[[Page 335]]

prior decedent) and which was originally acquired in a transaction the 
income from which was properly reportable by the decedent on the 
installment method under section 453. Under the provisions of section 
691(a)(4), an amount equal to the excess of the face value of the 
obligation over its basis in the hands of the decedent (determined under 
section 453(d)(2) and the regulations thereunder) shall be considered an 
amount of income in respect of a decedent and shall be treated as such. 
The decedent's estate (or the person entitled to receive such income by 
bequest or inheritance from the decedent or by reason of the decedent's 
death) shall include in its gross income when received the same 
proportion of any payment in satisfaction of such obligations as would 
be returnable as income by the decedent if he had lived and received 
such payment. No gain on account of the transmission of such obligations 
by the decedent's death is required to be reported as income in the 
return of the decedent for the year of his death. See Sec. 1.691(e)-1 
for special provisions relating to the filing of an election to have the 
provisions of section 691(a)(4) apply in the case of installment 
obligations in respect of which section 44(d) of the Internal Revenue 
Code of 1939 (or corresponding provisions of prior law) would have 
applied but for the filing of a bond referred to therein.
    (b) If an installment obligation described in paragraph (a) of this 
section is transferred within the meaning of section 691(a)(2) and 
paragraph (a) of Sec. 1.691(a)-4, the entire installment obligation 
transferred shall be considered a right to income in respect of a 
decedent but the amount includible in the gross income of the transferor 
shall be reduced by an amount equal to the basis of the obligation in 
the hands of the decedent (determined under section 453(d)(2) and the 
regulations thereunder) adjusted, however, to take into account the 
receipt of any installment payments after the decedent's death and 
before such transfer. Thus, the amount includible in the gross income of 
the transferor shall be the fair market value of such obligation at the 
time of the transfer or the consideration received for the transfer of 
the installment obligation, whichever is greater, reduced by the basis 
of the obligation as described in the preceding sentence. For purposes 
of this paragraph, the term ``transfer'' in section 691(a)(2) and 
paragraph (a) of Sec. 1.691(a)-4 includes the satisfaction of an 
installment obligation at other than face value.
    (c) The application of this section may be illustrated by the 
following example:

    Example. An heir of a decedent is entitled to collect an installment 
obligation with a face value of $100, a fair market value of $80, and a 
basis in the hands of the decedent of $60. If the heir collects the 
obligation at face value, the excess of the amount collected over the 
basis is considered income in respect of a decedent and includible in 
the gross income of the heir under section 691(a)(1). In this case, the 
amount includible would be $40 ($100 less $60). If the heir collects the 
obligation at $90, an amount other than face value, the entire 
obligation is considered a right to receive income in respect of a 
decedent but the amount ordinarily required to be included in the heir's 
gross income under section 691(a)(2) (namely, the consideration received 
in satisfaction of the installment obligation or its fair market value, 
whichever is greater) shall be reduced by the amount of the basis of the 
obligation in the hands of the decedent. In this case, the amount 
includible would be $30 ($90 less $60).

[T.D. 6500, 25 FR 11814, Nov. 26, 1960, as amended by T.D. 6808, 30 FR 
3435, Mar. 16, 1965]