Installment Sales to Related Party
A special rule applies to a first disposition (sale or exchange) of property under the installment method to a related party who then makes a second disposition (sale, exchange, gift, or cancellation of installment note) before making all payments on the first disposition. For this purpose, a related party includes your spouse, child, grandchild, parent, brother, sister, or a related corporation, S corporation, partnership, estate, or trust. See section IRS 453(f)(1) for more details.
Under this rule, treat part or all of the amount the related party realized (or the fair market value (FMV) if the disposed property is not sold or exchanged) from the second disposition as if you received it from the first disposition at the time of the second disposition. This rule does not apply if any of the conditions listed on line 29 are met.