Deferred Sales Trusts for Agency Owners: What You're Actually Paying For

Here's the short answer. A deferred sales trust lets you sell your agency or your building to an independent trust in exchange for a note instead of cash, so you pay tax under the installment rules of IRC Section 453 as payments arrive rather than all at once. The technique is real. But you are not buying tax deferral. Deferral is already free to you under the same statute. What you are buying is deferral without carrying your buyer's credit risk, and that is a much smaller thing than the price tag suggests.

I've been a CPA for more than 23 years, and my firm works with more than 70 marketing and advertising agency owners every month. I've watched an owner sell an agency for more than $6,000,000, feel the sting of what they paid, and find out on a second look that they had overpaid by more than $240,000. That review turned into amended returns and a refund. So I take the tax on a sale seriously.

I also want to tell you something the rest of the internet on this topic won't. I searched it before I wrote this. Nearly every article and video explaining deferred sales trusts was produced by a promoter network, a trustee firm, or an advisor who earns a fee if you sign. I don't sell these. I don't get paid whether you do this or don't. That's the whole reason this article exists.

What Is a Deferred Sales Trust, in Plain English?

Instead of selling your asset to your buyer, you first sell it to an independent, irrevocable trust. Not a gift, not a contribution. A genuine sale, at fair market value, in exchange for an installment note. The trust then sells the asset to your actual buyer for cash.

Because you took back a note instead of cash, you didn't realize the gain all at once. Under Section 453, you pay tax as you collect. The trust invests the full pre-tax proceeds and pays you on the schedule your note describes.

The appeal is easy to see. Money that would have gone to the government in year one stays invested and earns a return for you first.

One caution on the name. "Deferred Sales Trust" is a trademarked marketing term belonging to a specific promoter network. The underlying technique has no brand. It's an installment sale to a trust, and any competent tax attorney can describe it without using the trademark.

Isn't a DST a Delaware Statutory Trust?

That's a different animal wearing the same initials, and the confusion is common enough that people search for it directly.

A Delaware statutory trust is a fractional ownership vehicle used inside a Section 1031 exchange to buy replacement real estate. A deferred sales trust is an installment sale structure. Same three letters, opposite mechanics. If someone in your deal says "DST" and you don't know which one they mean, stop and ask. I've seen smart people nod along to the wrong one.

What Are You Actually Paying For?

This is the section the promotional material skips, and it's the one that should drive your decision.

You do not need a trust to defer gain under Section 453. If you sell your agency and take back a note from your buyer, you already get installment treatment. No trustee, no setup fee, no annual fee. Congress wrote that deferral into the statute and it costs you nothing.

So what does the trust add? One thing, mainly. It takes your buyer out of the credit equation.

When you carry a note for the person who bought your agency, your deferral depends on them staying in business and paying you. If the agency struggles under new ownership, your note is only as good as their cash flow. If they refinance and prepay you, your deferral collapses and the tax comes due. The trust replaces that promise with a professionally managed pool of assets that isn't correlated to whether your successor keeps the clients.

That's a genuine benefit. It's also the only one. And now you can price it properly: you're not weighing the trust against paying $952,000 in tax. You're weighing the trust's setup and ongoing fees against the risk that your buyer doesn't pay.

Run those two numbers side by side and a lot of deals answer themselves.

How Much of Your Agency Sale Even Qualifies?

Now the part that is specific to you, and that I have not seen written anywhere, because every article on this topic was written about rental property.

An agency sale is almost always an asset sale, and the purchase price gets allocated across asset classes under IRC Section 1060 and reported by both sides on Form 8594. Each class is taxed differently, and only some of it can ride the installment method at all.

Here's how a $4,000,000 agency sale can break apart. These figures are an illustration to show the mechanics, not a deal I worked on.

• Goodwill and the client list, say $3,000,000. Capital gain. This part is installment eligible. This is the piece a trust can actually defer.
• A covenant not to compete, say $400,000. Ordinary income to you. Not capital gain, and not helped by a trust.
• A consulting or transition agreement, say $300,000. That's compensation for services you haven't performed yet. Ordinary income as you earn it, and it was never installment property to begin with.
• Accounts receivable, say $250,000. If you're on the cash basis, collecting those is ordinary income. No deferral.
• Equipment, computers, and anything you expensed or depreciated, say $50,000. Section 453(i) requires recapture income to be recognized in the year of sale regardless of the installment method. The tax lands in year one no matter what you signed.

Read that list again. In this illustration, roughly a million dollars of a four million dollar price is taxed in the year of sale, and a good chunk of it at ordinary rates, and no trust in the world changes that.

Which leads to the practical point. Negotiating the allocation in your purchase agreement moves more after-tax money than the trust does. Shifting a few hundred thousand dollars out of a non-compete and into goodwill is worth real money, it costs you nothing but negotiating attention, and it happens before anyone mentions a trust. That's where I'd spend your energy first.

Do You Already Have the Deferral You're Being Sold?

Quite possibly, and this is worth checking before you pay anyone.

Agency deals are frequently structured with an earnout, where part of your price depends on the agency hitting revenue or retention targets after you leave. An earnout is a contingent payment sale, and it is already reported under the installment rules. Your basis gets recovered over the payment period and you pay tax on the gain as the money arrives.

So if you're being pitched a trust to obtain deferral you are already going to receive on half your price, ask the person pitching it to show you the after-fee comparison in writing. A good advisor will do it without flinching. Someone selling a product may change the subject.

What Does the IRS Actually Say About This?

It has never said yes, and that's not a small detail.

There is no revenue ruling, no regulation, and no binding guidance that blesses this structure by name. It rests on the installment sale statute plus a line of court decisions, which means every transaction stands or falls on its own facts. Three cases define the boundary:

• Rushing v. Commissioner (5th Cir. 1971) respected installment treatment where the seller could not "directly or indirectly have control over the proceeds or possess the economic benefit therefrom."
• Roberts v. Commissioner (9th Cir. 1981) allowed it where an independent trustee was under no compulsion to resell.
• Lustgarten v. Commissioner (Tax Court 1978, affirmed 5th Cir. 1981) denied deferral where the seller effectively controlled the escrowed proceeds. That seller was taxed on the entire gain immediately under the constructive receipt doctrine.

The IRS has also attacked these arrangements using the step transaction, economic substance, and agency doctrines, including in Chief Counsel Advice 201330033, where deferral was denied because the intermediary functioned as the seller's conduit.

Two facts from the current record that the promotional material tends to leave out:

The IRS is actively investigating promoters. On January 2, 2024, the government filed a petition in the Central District of California, United States v. Kaylor DST Services, LLC, No. 8:24-cv-00003, seeking to enforce summonses for client lists and trust agreements. The stated purpose was investigating whether the respondents promoted a potentially illegal tax shelter from 2015 forward, with promoter penalties under Sections 6700 and 6701 on the table.

A close cousin is headed for listed transaction status. The monetized installment sale, where a promoter lends you most of your sale price up front, was named to the IRS Dirty Dozen and is the subject of proposed regulations that would make it a listed transaction with mandatory Form 8886 disclosure. Those regulations were still in proposed form as of this writing in August 2026. A promoter challenge to them was thrown out in 2025 because a proposed rule isn't final agency action yet, which tells you the direction of travel.

A properly built deferred sales trust is a different structure, precisely because you don't get the cash up front. But the neighborhood is under surveillance. Build it to survive an examination, because you should expect one.

The practical translation: your trustee has to be genuinely independent. Not your brother-in-law, not your CPA, and not somebody you can fire when you want your money early. The moment you can reach the cash, the deferral is gone.

What Happens Above $5 Million?

This one lands squarely at agency deal size, so don't skip it.

Under Section 453A, if your outstanding installment obligations exceed $5,000,000 at year end, you owe annual interest to the government on the deferred tax attributable to the excess. It doesn't wipe out the benefit. It does erode it, every year, on exactly the deals where the deferral looked most attractive.

Section 453A carries a second trap that matters more than the first. Pledging the note as collateral for a loan is treated as receiving payment on it. So the natural move, borrowing against your note when you need liquidity, is the move that triggers the tax you were deferring. If you think you might need to borrow against this money, you need to know that before you sign, not after.

When Does This Actually Make Sense?

Four things should be true. If any one of them isn't, the answer is probably no.

1. Your gain is large and your basis is small. A founder who built the agency from nothing has almost no basis, so nearly the entire price is gain. That's the profile with the most to defer.
2. You don't need a lump sum. If you need cash at closing for the next thing, stop here. This vehicle produces an income stream, not a pile of money.
3. The installment-eligible slice is big enough to matter. Run the allocation first. If most of your price is ordinary income, you're paying trustee fees to defer a minority of your deal.
4. You'd otherwise be carrying your buyer's paper. If you were going to take back a note anyway, the trust is solving a real problem. If your buyer is paying all cash from committed funds, look hard at what you're actually buying.

Who This Isn't For

If you own an agency and you're selling for a price where the fees are a meaningful percentage of the tax at stake, don't do this. Fees compound against you the same way deferred tax compounds for you.

If your buyer is a well-capitalized holding company paying cash at close, the credit risk you'd be paying to eliminate may not exist.

If you want your heirs to inherit this cleanly, understand the tradeoff. An installment note gets no basis step-up at death. Under Section 691, the deferred gain becomes income in respect of a decedent, and your heirs pay the tax as payments continue. Real estate held until death does get a step-up, which is the entire logic of the buy-and-hold real estate plan. Deferring is not forgiving.

And if you haven't yet had anyone read your deal structure who lives in agency books, start there instead. Filing a return isn't a tax strategy, and neither is buying a product before anyone has looked at your allocation.

What to Do Next

The window closes the second you sign a binding contract to sell. Once the deal is papered the wrong way, there is no undo button, so the sequencing matters more than the strategy.

Do these in order:

1. Get your purchase price allocation reviewed before you sign anything. This is the highest-value hour in the entire process and it costs you the least.
2. Run the numbers three ways. A direct sale, a plain installment note from your buyer, and the trust. Include trustee setup and annual fees, and include state tax, which varies enormously.
3. Ask what the trust adds over the free version. If the answer isn't a specific, quantified risk it removes, you have your answer.
4. If you proceed, engage a tax attorney and a CPA who have structured and defended these, not a promoter selling them. Vet the trustee's independence and fee structure in writing.

A generalist files a clean return. Clean isn't the same as complete. The difference between a tax preparer and a tax advisor is that one records what happened and the other knows what to look for before it happens.

Book a Free Tax Analysis and we'll look at your deal structure and tell you honestly whether this belongs in it. Sometimes the answer is that a plain note from your buyer does the same job for nothing. That's a real answer, and you'll get it.

Let's talk.

Frequently Asked Questions

What is a deferred sales trust?

A deferred sales trust is an installment sale to an independent, irrevocable trust. You sell your appreciated asset to the trust in exchange for a promissory note rather than cash, and the trust then sells it to your actual buyer. Because you received a note instead of cash, you report gain under IRC Section 453 as payments arrive rather than in the year of sale. "Deferred Sales Trust" is a trademarked term used by a promoter network, but the underlying technique is simply an installment sale through a trust.

Is a deferred sales trust legal?

The installment sale statute it relies on is well established, but the IRS has never issued a revenue ruling or regulation approving this structure by name. It rests on Section 453 and a line of court cases, so each transaction stands on its own facts. Courts have respected sales through genuinely independent trusts in Rushing and Roberts, and denied deferral in Lustgarten where the seller kept effective control of the proceeds. The IRS has also been investigating promoters, including a 2024 summons enforcement petition against Kaylor DST Services in the Central District of California.

Do I need a trust to defer capital gains when I sell my business?

No. If you take back a note from your buyer, you already qualify for installment treatment under Section 453 at no cost. What a trust adds is that your deferral no longer depends on your buyer's ability to keep paying, and it protects you from a prepayment that would collapse the deferral. That risk transfer is what you're paying trustee fees for, so compare the fees against that specific risk rather than against the whole tax bill.

What part of an agency sale can actually be deferred?

Only the installment-eligible portion, which is generally the goodwill and client list allocated as capital gain. A covenant not to compete and any consulting or transition agreement are ordinary income. Cash-basis accounts receivable are ordinary income when collected. Depreciation recapture on equipment must be recognized in the year of sale under Section 453(i) regardless of the installment method. Because of that, negotiating your purchase price allocation under Section 1060 often moves more after-tax money than any deferral vehicle does.

What's the difference between a deferred sales trust and a Delaware statutory trust?

They share initials and nothing else. A Delaware statutory trust is a fractional real estate ownership vehicle used to acquire replacement property inside a Section 1031 exchange. A deferred sales trust is an installment sale structure that lets you exit an asset class entirely and diversify. If someone in your transaction says "DST," confirm which one they mean before you rely on it.

Is there a penalty for large installment sales?

Yes. Under Section 453A, if your outstanding installment obligations exceed $5,000,000 at year end, you owe annual interest to the IRS on the deferred tax attributable to the excess above $5,000,000. Section 453A also treats pledging the note as loan collateral as if you received payment on it, which accelerates the deferred tax. Both rules matter on larger agency and real estate deals.

How is a deferred sales trust different from a 1031 exchange?

A 1031 exchange defers gain only if you reinvest in like-kind real property, identifying a replacement within 45 days and closing within 180. You stay in real estate to keep deferring. A deferred sales trust has no such deadlines and lets you diversify into anything. The tradeoff is at death: real estate held until death passes with a stepped-up basis that erases the deferred gain, while an installment note gets no step-up and the remaining gain is income in respect of a decedent taxed to your heirs.