It reversed a US Tax Court decision that held that "the fair market value of a real estate contract did not constitute an amount realized by the taxpayer in the taxable year of sale under Internal Revenue Code § 1001(b).

"[1] Taxpayer, the Warren Jones Company, entered into a real estate contract to sell an apartment building for $153,000 on May 27, 1968 to Bernard and Jo An Storey.

[1] The contract then required the Storeys to pay the taxpayer $1,000 per month, plus 8 percent interest on the declining balance, for the next fifteen years.

[1] Accordingly, in its federal income tax return for the taxable year ending October 31, 1968, taxpayer reported no gain from the sale of the apartment building.

§ 1001(b) requires the taxpayer to include the fair market value of its real estate contract with the Storeys for determining the "amount realized" during the taxable year of the sale.Warren Jones Co. v. Commissioner, 524 F.2d 788, 790 (9th Cir.

The Tax Court, relying on the "cash equivalency" doctrine, held that the fair market value of the contract was not includable in the amount realized from the sale.

The US Supreme Court, in Burnet v. Logan, 283 U.S. 404 (1931)[5] held that taxpayers using the installment method can defer the recognition of gain according to the open transaction doctrine if an obligation's fair market value cannot be determined.

[6] What if a taxpayer elects out of the installment method of accounting despite having the ability to reasonably determine the amount realized from a deferred payment sale?