What is the character of gain and structure this transaction

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Chris wants to purchase manufacturing equipment from Owl LLC but he is a little short on cash and cannot get a loan from a bank. Owl LLC is willing to finance the purchase and the agreed that Chris will purchase the equipment for $350,000 (this is considered an installment sale). Chris will pay $50,000 down and $60,000 per year for the next five years plus interest (this is known as an installment sale). The sale closed in 2014 and Chris paid the $50,000 per the agreement plus interest. No other principal was paid. Owl originally purchased the equipment on 4/12/2012 for $300,000 and it has an adjusted tax basis of $200,000.

What will Owl recognize as a gain in 2014 and what is the character of the gain? Can you think of a better way to structure this transaction?

Include an analysis of the research that you found to support your conclusion and cite your sources. Please be sure to use valid tax authority.

Reference no: EM13877817

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