A Deferred Sales Trust can defer capital gains, but it lives in a tax gray zone the IRS has been circling. Below is an honest look at the risk, and at the statute-based §453 alternative that does the same job without the asterisk.
By Hans Goldstein, EA, Tax & Exit Planning · Updated
Admitted to practice before the IRS.
If you're selling an appreciated asset and someone has pitched you a Deferred Sales Trust, you've probably also Googled some version of "is this actually legal?" Good instinct. This is a straight answer from someone who places deferral structures for a living, including the honest part most deferred sales trust promoters skip.
Send me the sale price and rough basis. Within one business day I'll email you the actual number and the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation. Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Go deeper: deferred sales trust problems and what to check first on Big Sale Tax.
A deferred sales trust uses a third-party trust to "buy" your asset and resell it, then pay you over time, deferring the gain. The concept relies on installment-sale principles, but the specific structure has never been approved in an IRS revenue ruling. It works by analogy, not by a clear green light.
Because the IRS has been paying attention. Related "monetized installment sale" arrangements landed on the IRS Dirty Dozen list, the DOJ has pursued promoters of sham-trust arrangements, and court cases have tested the edges. A legitimate deferred sales trust can be defensible, but you're relying on facts, promoters, and trustees you don't control, in an area without a definitive IRS ruling.
A Structured Installment Sale (SIS) achieves the same goal (spreading your gain over years to lower the tax), but it's built directly on IRC §453, the installment-sale statute Congress wrote, with the future payments owed by an assignment company and funded by a fixed annuity from a highly rated life insurer. There's no exotic trust and no promoter. No IRS ruling specifically approves the assignment structure, so have your own CPA or tax attorney review it. It's the deferral structure you can explain to your CPA without either of you wincing.
If the appeal of a deferred sales trust is "spread the tax and get reliable income," a structured installment sale usually gets you there with far less tax risk. The deferred sales trust's extra flexibility rarely justifies sitting in a gray zone on a once-in-a-lifetime sale. Get a second opinion before you sign anything.
A Deferred Sales Trust relies on installment-sale principles, but the specific structure has never been validated by an IRS revenue ruling, so it operates in a legal gray area. It is not automatically illegal, but its defensibility depends entirely on how it is structured and administered.
The IRS has scrutinized closely related arrangements such as monetized installment sales (which appeared on its Dirty Dozen list), and the DOJ has pursued promoters of certain sham-trust arrangements. A properly run deferred sales trust may be defensible, but the category has drawn enforcement attention.
A Structured Installment Sale under IRC §453 achieves similar tax deferral (spreading the gain over years) but is built on the installment-sale statute itself, with payments owed by an assignment company funded by a fixed annuity from a highly rated life insurer. It avoids the untested-trust risk of a deferred sales trust, though no IRS ruling specifically approves the assignment structure either.
A deferred sales trust uses a third-party trust without a specific IRS ruling; a structured installment sale uses the §453 installment method directly, with a carrier-funded payment stream. The SIS is generally considered the more conservative, statute-based option.
Often, yes. The future payments in a structured installment sale are funded by a fixed annuity from a highly rated life insurance company, so the payment schedule is set at closing and does not depend on a trustee's investment decisions. Payments depend on the claims-paying ability of the issuing insurer.
Before you sign anything, run your numbers with someone who structures the deal to be tax-smart and audit-ready from day one.
Call 213-414-2808 Run the Numbers →
A plain-English guide for sellers on how a structured installment sale defers the tax when you sell a business, practice, or property. It covers the math, the alternatives, and how to tell if your deal fits.
Leave your details and the PDF downloads right away. Within one business day Hans will email a preliminary read on which structure fits your deal. No retainer. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
📞 Hans Goldstein · 213-414-2808 · CA Insurance License #4273294 · Independent §453 specialist · Goldstein & Co. LLC
Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
No IRS ruling approves it, so it rests on general installment-sale rules and the trust being independent of you. The trustee controls and invests the proceeds, so your payments depend on those investments, and trustee, promoter and investment fees reduce what you net. If the IRS treats the trust as your agent or a sham, the full gain can be taxed in the year of sale.
It is illiquid and passive. You cannot sell your interest easily, you have no say in managing the property, the sponsor sets the hold period and the exit, and fees are built into the offering. It must be bought as replacement property within the 1031 deadlines. If the property underperforms, distributions can be cut, and the deferred gain is still there when the trust sells.
Mainly to complete a 1031 exchange without managing property yourself. Under Rev. Rul. 2004-86 an interest in a properly structured Delaware statutory trust counts as like-kind real property, so sellers who are tired of being landlords, or who need replacement property fast to meet the 45-day deadline, use one to keep the full deferral while owning a fractional share of large commercial property.
A Delaware statutory trust is a legal entity, formed under Delaware law, that holds title to investment real estate and sells fractional beneficial interests to investors. The sponsor manages the property. It is different from a deferred sales trust, which is an installment-sale arrangement and not real estate ownership.
Sources: IRS Dirty Dozen tax scams; Rev. Rul. 2004-86; IRS Publication 537, Installment Sales. Checked October 3, 2026.
Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. General education, not tax or legal advice for your situation.
