When exploring ways to defer capital gains taxes from the sale of real estate, a business, or other appreciated assets, you’ll likely encounter two similar-sounding strategies: the 537 Installment Sale Trust (537 IST) and the Deferred Sales Trust (DST).

Both are designed to achieve tax deferral under IRC §453, but they differ significantly in structure, transparency, and administration. Understanding these distinctions helps investors and business owners choose the framework that best fits their goals.

What They Have in Common

Both the 537 IST and DST rely on the Installment Sale Method outlined in Internal Revenue Code §453, which allows a seller to recognize gain over time as payments are received — instead of all at once in the year of sale.

This concept has existed for decades and forms the legal backbone of legitimate installment-based tax strategies. However, each approach builds upon §453 differently. The 537 IST implements it in a direct and transparent way, while the DST takes a proprietary approach using its own trust documentation.

What Is the 537 Installment Sale Trust?

The 537 Installment Sale Trust (537 IST) is a code-aligned, non-grantor irrevocable trust designed to comply directly with IRS Publication 537. It allows a seller to transfer appreciated assets into a trust before the sale. The trust then sells the asset and holds a secured installment note.

This structure provides:

• Tax deferral through the standard installment sale method under §453

• Interest-only distributions, allowing principal to remain invested and compounding

• Independent fiduciary oversight, separating control and avoiding constructive receipt

• Clear alignment with IRS guidance and examples within Publication 537

Because the 537 IST follows established code and publication language, it is transparent, easily reviewed, and widely accepted by tax professionals.

What Is the Deferred Sales Trust?

The Deferred Sales Trust (DST) also uses concepts from §453, but it’s delivered through a proprietary, licensed structure that differs from a standard installment sale trust.

DSTs are typically implemented via custom trust agreements that are trademarked and supported by private legal opinions. They often use an irrevocable trust managed by a third party affiliated with the promoter. While the underlying tax principle (installment sale) remains valid, the documentation and control structure differ from IRS Publication 537 examples.

Key characteristics of most DST implementations include:

• A proprietary trust design not publicly standardized

• Reliance on legal opinion letters to establish compliance

• Promoter-created documents and trademarked branding

• Administration handled by a DST-affiliated trustee

These features don’t make the DST “wrong” — but they do make it less transparent compared to the code-based 537 IST. Because DSTs are not built from a public IRS publication, understanding how each transaction is structured may require additional review and reliance on private interpretations.

Comparing the Two Approaches

Key Distinctions and Considerations

1. Transparency

   • The 537 IST uses open, code-based documentation available to any tax professional.

   • The DST is proprietary, so its agreements and processes are not publicly standardized.

2. Control and Oversight

   • The 537 IST is administered by an independent fiduciary — separating the seller from the trust.

   • The DST is often managed by a promoter-affiliated trustee, which may not provide the same level of independence.

3. Review Process

   • The 537 IST can be reviewed directly against IRS Publication 537 and IRC §453.

   • The DST typically requires access to a promoter’s legal opinion or licensed documentation for due diligence.

4. Clarity for Advisors

   • With the 537 IST, tax counsel can verify compliance directly from public IRS sources.

   • With the DST, advisors must often rely on private documents to confirm interpretation.

Why Understanding the Difference Matters

The difference between these strategies isn’t about one being “good” or “bad” — it’s about how transparent each process is, how control is handled, and how easily compliance can be reviewed under IRS law.

A key distinction is how the trust is structured and administered. The 537 Installment Sale Trust can begin as revocable during the setup phase, allowing coordination with estate planning or living trust strategies. Once the sale is finalized and the installment note is issued, it typically becomes irrevocable — ensuring clear fiduciary separation and compliance under Section 453.

This dual-phase flexibility allows sellers to:

• Integrate the trust into broader estate or wealth plans before funding

• Maintain comfort during planning

• Transition to a fully non-grantor, irrevocable structure when tax deferral begins

In contrast, the Deferred Sales Trust (DST) is designed as irrevocable from inception, often under proprietary agreements that are not publicly standardized. This makes it harder for third-party professionals to review documentation or confirm IRS alignment without relying on promoter-provided materials.

Ultimately, the 537 IST appeals to those who value clarity, independence, and audit-readiness, while the DST may appeal to those open to a proprietary interpretation supported by private legal opinions.

For investors, business owners, and tax advisors, understanding these nuances helps ensure the chosen strategy fits both personal comfort levels and compliance expectations.

Final Thoughts

Both the 537 Installment Sale Trust and the Deferred Sales Trust are inspired by the same installment sale principles under §453, but they take different paths in applying them.

• The 537 IST follows the IRS code directly, uses a fiduciary-administered trust, and operates within the examples provided in Publication 537.

• The DST is a proprietary model that applies similar logic through trademarked trust documentation, offering flexibility but less public transparency.

When reviewing either, ask your advisor:

“Can you show me the IRS code or publication that supports this structure?”

If the structure points directly to IRC §453 and IRS Publication 537, you’re reviewing a code-based approach like the 537 IST.
If it relies primarily on private legal opinions or trademarked agreements, it represents a proprietary interpretation of the installment sale concept.

🧠 Learn More

Visit q-1031.com to learn more about how the 537 Installment Sale Trust uses IRS-approved methods under Section 453 to defer capital gains, protect assets through fiduciary administration, and provide ongoing interest-based income.