Content reviewed October 17, 2026 · Educational reference
The judicial anchors — and the outer limit.
5.1 · Cunningham v. Commissioner — Obligor Substitution Upheld
A seller sold stock for cash and notes; the buyer corporation later sold the stock to a second corporation that assumed the notes, with the first corporation released and terms later modified. The Tax Court rejected the IRS's argument that the assumption triggered a disposition: the sellers "had no more or less than they had in the beginning. They were creditors of the same installment obligations. There was a different obligor … but in both instances the essential underlying security … was the stock and earning potentials."
Cunningham is an important case-law anchor for preserving installment obligations after a new obligor assumes them. Compare the rights and security that continued on its facts with the proposed SIS. Its judicial weight and any IRS acquiescence do not convert an analogous decision into approval of every combination of assignment, release, guarantee, and funding.
5.2 · Oden v. Commissioner — The Escrow / Constructive-Receipt Boundary
A leading authority — cited by the IRS itself (e.g., in PLR 200521007) — for the rule that depositing the buyer's funds into escrow results in constructive receipt by the seller "if the funds are not subject to substantial conditions or restrictions other than time of payment and the seller expects to collect." If constructively received, installment treatment is defeated.
Oden belongs in the analysis of escrowed proceeds and receipt, rather than as approval of an SIS. A time delay in access is not necessarily a substantial restriction for tax purposes. Review whether the seller has current beneficial rights in a fund, what restrictions actually apply, and how the funding sits relative to creditors. The case identifies a risk to analyze; it does not validate a different funded arrangement merely because the seller cannot withdraw an annuity.
5.3 · Holmes v. Commissioner — The Third-Party-Note Rule
The seller of California real property took, as part of the consideration, a promissory note made by a third party (the "Smith note"); the buyer assigned the note to the seller and separately guaranteed it. The Tax Court held that a third-party note is not an "evidence of indebtedness of the purchaser" under §453(b)(2) of the 1954 Code, so its fair market value must be counted as a payment received in the year of sale. The buyer's guarantee did not convert the third-party note into the buyer's own obligation — it bore only on the note's valuation. The court left the seller's installment election intact; only the third-party note was accelerated into year-of-sale income.
Holmes illustrates the third-party-note question: receipt of someone other than the purchaser’s evidence of indebtedness can count as a payment at fair market value, and the purchaser’s guarantee does not change the instrument’s issuer. For an SIS, determine whether the seller retains an assumed buyer obligation or receives a separate third-party asset as sale consideration. Sequencing is part of that analysis, not a stand-alone safe harbor. The resulting taxable installment gain is computed from the payment; it is not necessarily the full face amount of the obligation.
5.4 · Williams v. United States — The Unifying Escrow Rule
A seller who could have taken cash but instead parks it in an escrow or fund they remain entitled to draw on is taxed on the full amount in the year of sale; a seller subject to a real economic restriction is not. IRS Publication 537's "Escrow Account" guidance codifies the same distinction.
The foundational, oldest articulation of the constructive-receipt/economic-benefit boundary that Oden later applied. It frames why an SIS must use a genuinely restricted, assignment-company-owned structure rather than a seller-accessible escrow.
5.5 · Burrell Groves, Inc. v. Commissioner — The Outer Limit
The taxpayer surrendered the original note, released the original buyer, and accepted new notes from a new buyer with a different interest rate, different payment amounts, and a different term. The court held this was a disposition.
Burrell Groves illustrates why an exchange of obligations and changes in rights cannot be assumed harmless. Read it alongside later modification rulings such as Rev. Rul. 82-122; do not describe an administrative ruling as overruling a court or as permission to adjust rates freely. The issue is the actual package of rights surrendered and received and whether §453B treats it as a disposition. Preserve the analysis of contrary and distinguishable authority in the transaction file.
Sources: T.D. 8675 — debt modifications, IRS Bulletin 1996-29; IRC §453B — dispositions of obligations; IRC §1060 — allocation of business purchase price; IRS Publication 537 — Installment Sales; Burrell Groves, Inc. v. Commissioner, 223 F.2d 526 (5th Cir. 1955).
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