Alluring Accommodations $($Alluring$)$ has been referred to your firm as a tax client. The company sells timeshares and was incorporated on February $25,2023,$ in the state of California. Alluring plans to sell about $45$ four$-$week timeshares each year. All timeshares are located in the United States. Each timeshare sells for $$65,000$ to $$80,000.$ Alluring generally agrees to take a down payment followed by payments over a three$-$year period. Even though the timeshare units are Alluring$$s inventory, Alluring is looking for a way to defer recognition of the gain on sales for as long as possible. You have been provided with a sample contract to review. In the sample contract, Steven Sou $($buyer$)$ purchased a four$-$week timeshare on April $11,2023,$ for $$80,000.$ He paid $$20,000$ down and agreed to make $$20,000$ payments on April $11,2024,2025,$ and $2026.$ Each payment is to be increased by the interest on the unpaid balance at the date of the payment. The agreement carries an $8\%$ rate of interest $($market rate for this type of loan$).$ Steven is not a U$.$S$.$ tax resident for Federal tax purposes. During early $2024,$ Steven sells the timeshare to his sister, Kim. Alluring $$s original basis in the unit sold to Jason is $$40,000.$

Your responsibilities:

Prepare a tax research memorandum to the Alluring Accommodations Tax File that provides your conclusion on what method$($s$)$ might be available to defer recognition of the gain on the sale of the timeshare. A copy of your memo should go to the client$$s tax partner in your firm, Michael Madruga.

You will need to support your conclusion using primary sources of tax law. Use only statutory $($i$.$e$.,$ legislative$)$ Sources of tax law to respond to this question. You may research ANY tax authority $($primary or secondary$),$ but your solution must be derived and supported using only primary authority $$ in this case, statutory only.

Be sure to include any relevant information and calculations related to your conclusion that Alluring should know regarding the tax treatment of the sale to Steven.

You must use proper citation form in your memo $($see the inside front cover of your text$).$

The memo should be whatever length you feel is appropriate to resolve the issues. In general, at least two pages are required to fully answer the question. Do not use a bibliography or list of authorities in this tax research memo. Citations should be within the text of the document.