Deferred Sales Trust

Classification B or C, depending on the variant. B: legitimate, commonly abused. C: legitimate but aggressive.

Sold as: "DST", "deferred sales trust", "1031 alternative", "sell your business and defer for 10 years"

The design determines the answer. If you can direct how the trust invests your money, you constructively received it.

The pitch

Sell your business or property to a trust for an installment note instead of taking cash, defer the gain for ten years or more, and have the trust invest the proceeds meanwhile. A 1031 alternative that works for any asset.

What it costs you if it is wrong

If the design leaves you control over the trust or its investments, constructive receipt puts the whole gain in the year of sale. Sec. 453A interest is owed on deferred tax for obligations over 5,000,000 dollars whether or not anyone computed it. The IRS is running a Sec. 6700 and 6701 promoter investigation on DST matters.

Red flags

The trustee was supplied by the promoter
You can direct how the trust invests the proceeds
Nobody can produce the executed promissory note
Sec. 453A interest was never computed

Questions to ask the person selling this

1Who is the trustee, and are they affiliated with you?
2Can I direct how the trust invests the proceeds?
3Can you show me the executed promissory note?
4Who computes and pays Sec. 453A interest?
5How is this different from a plain Sec. 453 installment sale?

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