- Adjusted basis
- The seller's cost in the asset adjusted for improvements and depreciation; recovered tax-free as payments are received.
- Assignment company
- A specialized, non-insurance entity that accepts the buyer's payment obligation via a non-qualified assignment and funds it with an annuity.
- Claims-paying ability
- An insurer's financial capacity to meet its policy obligations, as assessed by rating agencies.
- Constructive receipt
- A doctrine taxing income once it is made available; an SIS seller must not have a present right to the full proceeds.
- Contract price
- Selling price reduced by qualifying assumed debt (not exceeding basis); the denominator of the gross-profit percentage.
- Deferred Sales Trust (DST)
- A strategy in which sale proceeds are placed in a third-party trust that invests them and pays the seller over time under an installment contract. Distinct from an SIS (no trust) and from a monetized installment sale (no loan); aggressive forms draw IRS scrutiny.
- Economic-benefit doctrine
- Rule taxing funds irrevocably set aside for a taxpayer; the SIS seller must not own the funding annuity.
- Gross-profit percentage (GPP)
- Gross profit ÷ contract price; fixes the taxable-gain fraction of each installment payment.
- Installment method
- IRC §453 method of reporting gain proportionally as payments are received.
- Listed transaction
- A transaction the IRS has identified as potentially abusive; a properly structured SIS is not one.
- Monetized installment sale
- An arrangement combining installment deferral with a near-term loan against the note for cash now; targeted by the IRS (REG-109348-22) and DOJ. Distinct from a Deferred Sales Trust (which uses a trust, not a loan) and from a bona fide SIS.
- NIIT
- The 3.8% Net Investment Income Tax (§1411), applying above MAGI thresholds of $200K (single) / $250K (MFJ).
- NOLHGA
- National Organization of Life & Health Insurance Guaranty Associations, coordinating state guaranty coverage.
- Non-qualified assignment
- Transfer of a payment obligation outside §130 (which requires physical injury); the legal engine of the SIS.
- Pledge rule (§453A(d))
- Treats amounts borrowed against an installment obligation as payments received, triggering immediate gain.
- Recapture (§1245 / §1250)
- Prior depreciation recaptured on sale; §1245 is ordinary income in year 1, unrecaptured §1250 is taxed at a 25% maximum.
- Risk-Based Capital (RBC)
- NAIC formula scaling required insurer capital to risk; triggers a four-level intervention ladder.
- Statutory Accounting Principles (SAP)
- Conservative, solvency-focused accounting required of insurers, more stringent than GAAP.
- §453A interest charge
- Annual interest on deferred tax when sale price exceeds $150,000 and obligations exceed $5,000,000 at year-end.
- §453B disposition
- An event accelerating installment gain; a mere substitution of obligor, rights intact, is not one.
- Structured settlement
- Periodic-payment resolution of a physical-injury claim under §104(a)(2)/§130 — the precursor to the SIS.