Bill Baxter would like to sell his very extensive firearms collection to his nephew. The nephew has suggested that the purchase take the form of an installment sale. Bill has asked you to explain the tax implications and nontax characteristics of an installment sale.

You should tell him all of the following except

his nephew will have to make at least one payment in a taxable year following the year of sale.

both Bill and his nephew will have to elect installment sale treatment on their income tax returns in the year of the sale.

Bill can take a security interest in the firearms without losing installment sale treatment.

Bill will be able to recognize any capital gain from the sale on a pro rata basis as payments are received.