What Are Monetized Installment Sales?
This month, we speak to expert Darren Carlson, who briefly touches on monetized installment sales; he speaks on who can utilize these sales and the benefits of them for those in the agricultural industry, as well touching on his journey into law and specializing in estate planning.
Can you summarise a monetized installment sale in one sentence?
A monetized installment sale is a sales transaction that is converted into immediate cash (i.e. monetized) although deferring income taxes for decades by use of the Installment Sale tax reporting.
Who are the appropriate people to utilize a “monetized installment sale”?
Any farmer, rancher, tree farmer, vineyard or orchard that is selling an agricultural land or agricultural commodity can benefit from the tremendous tax savings from using a monetized installment sale under section 453 of the IRS Tax Code.
The monetization of installment sales transactions has historically been a tax strategy reserved for multi-million-dollar transactions.
Are monetized installment sales new to agriculture?
The use of deferred payment reporting on sales of farmland and farm commodities has existed in various forms since its inception in 1918. For farmers who use the cash method of accounting, deferred payment has been a tax strategy utilized to defer the reporting of income into the following tax year. The deferred payment of farmland sales is commonly referred to as an installment sale. The deferred payment on personal property such as grain and livestock also qualifies for installment sale reporting. The term “monetize” refers to the “process of turning a non-revenue-generating item into cash.” Thus, the monetization of the deferred payment is simply converting the installment sale of farm real estate or the deferred sale of farm commodities (such as grains and livestock) into cash. The monetization of installment sales transactions has historically been a tax strategy reserved for multi-million-dollar transactions.
The complexity and cost of structuring these transactions have historically put them beyond the reach of small to mid-sized farmers.
Why has the monetized installment sale not been used by small to medium-sized farm sales the past forty years?
The complexity and cost of structuring these transactions have historically put them beyond the reach of small to mid-sized farmers. However, recent standardizations of the monetization documentation have made the monetization of deferred payment transactions for the sales of farms and agricultural commodities accessible to nearly all farmers. As a result, no longer is the monetization of the deferred sale reserved for multi-million dollar transactions and can economically be completed on the transaction as small as one million dollars.
More About Darren
Why did you pick law?
As a 13-year-old, I sat through an eight-day jury trial of a famous celebrity accused of hiring a “hit man” to kill his wife. The hit man was an undercover police officer. Every evening my parents and friends would ask “if he is going to be found guilty”. After about the 4th day of trial, I realized he would likely get an acquittal. Despite the accused showing up at the hotel with cash to give to the hit man and the exchange being all recorded on video, he was acquitted. Bottom line, the accused had the most brilliant attornies. That was when I decided at 13 years of age that I wanted to be an attorney. Although most of my practice is outside the courtroom, I still love the challenge of finding the solutions for my clients.
What does your typical day as a lawyer look like?
I hit the office usually by 7:15 am every morning. I typically don’t leave the office until after 6:00. I spend a minimum of 2 or 3 hours every day providing oversight and operations management for our law firm of 15 attorneys. Two months ago we purchased a new downtown office and opened a second location. The remodel and logistics of efficiently running a law firm with multiple locations takes a disproportionate amount of time. With that project behind us, the balance of my day is divided pretty equally between meetings with clients discussing their situation and potential strategies, while the balance of my day is reviewing contracts, estate plans and transactional documents. I have several outstanding associates that now draft nearly all of my transactional documents so I am only required to spend a couple of hours of the day reviewing and editing documents.
You must listen first; speak only after you have had the opportunity to fully listen to your client.
Any top tips for new lawyers starting out? What is your golden nugget of advice?
When I was being interviewed for my first attorney position, I was asked what skills or attributes I most admired from what I have experienced as a law clerk in my three years at law school. Unquestionably, the two skills that stood out to me instantly as the most important– good organizational skills and a good understanding of processes. When you walk into an attorney’s office and you see papers stacked everywhere—you know that attorney is not well organized and likewise, does not have a good appreciation for the process (i.e. efficiency) of practicing law. You generally developed this skill set intuitively when you are taught to pick up toys in your room as a small child; you either did it or you did not.
Some areas of law you work on, such as estate planning, can be quite sensitive. How do you work around this?
There are a couple very “common sense” items that it takes to develop good rapport with and respect from clients. You must speak to them, not at them. You must listen first; speak only after you have had the opportunity to fully listen to your client. Never speak down to your clients, but always speak to them on their intellectual level and with vocabulary and terms they can appreciate and understand.
I love our firm motto of “Friends of the Family.” It tells the story.
What has been the biggest challenge that you had to overcome during your career?
Understanding and accepting that with the current complexity and constant changes in the law, I cannot be an expert in all areas. To limit my practice to specific areas where I have sufficient time to devote to these areas was essential. We strive to keep all of our attorneys limited to one or two practice areas so that they can focus and become “experts” in those areas. The days of general practice lawyers do not exist anymore in major metropolitan areas.
Favourite motto?
I love our firm motto of “Friends of the Family.” It tells the story. We want all of our clients to feel as though they truly are the friends of the family, not just another client.
DARREN R. CARLSON
Partner
Darren Carlson is an accomplished and dedicated attorney in Omaha, Nebraska, and a partner with the firm Carlson & Burnett. In 1985, Darren graduated from Iowa State University with a degree in Agricultural Business. He went on to attend Creighton University School of Law, obtaining his law degree and graduating magna cum laude in 1988. During his time in law school, Darren was a member of the Creighton Law Review editorial staff from 1986 to 1988, where he wrote“Bankruptcy: Restrictions of Abandonment of Burdensome Property.”
Areas of Practice
Over the course of his over 31-year legal career, Darren has maintained a reputation for true professional excellence in the areas of estate planning, elder law, agricultural law, corporate law, and business transactions. He has frequently lectured on a broad range of subject matters pertaining to his legal practice. His work includes assisting clients in the establishment of estate plans, medical planning, nonprofit foundations and corporations. He has published and lectured on “Monetized Installment Sales” as a tax strategy under Section 453 to defer the income taxes on sales of farmland and farm commodities.
