The sale of a long-running business usually triggers a big tax bill, and small business owners often struggle to cover that obligation. The due date on that tax bill, however, can be flexible because the tax code includes tax-deferring incentives that encourage business owners to sell more often, which “turns the assets over” and stimulates more economic growth.

Case in point: Dr. Bert Wallace, who 30 years earlier had taken over his father’s dental practice when his dad retired. His father deferred the taxes by spacing out the payments the younger Dr. Wallace made over a number of years, paying taxes each year only on the proceeds he received. This arrangement worked well, as the annual payments from son to father provided added revenue that supplemented the dad’s retirement income.

Thirty years later, it was now the younger Dr. Wallace himself who was ready to sell his thriving practice and retire. But none of his children followed him into dentistry, so he had no family members to whom he could sell his practice. Also, his taxes were sizeable:

Dr. Wallace had to find a way to move on to enjoy a full retirement by selling his practice to another dentist, without relying on the new owner to make payments on a deferred basis like his dad did.

Investigation with his CPA and financial advisor found that there is a lawful way to sell his practice and walk away from escrow closing with no immediate capital gains taxes due, and still receive a tax-free lump sum of money that was nearly equivalent to the sale proceeds. He accomplished this by coupling a monetization loan with an installment sale.

This approach is not well-known, but it is a valid planning solution under law. The Chief Counsel of the Internal Revenue Service confirmed in a 2012 memorandum that it is permissible for an installment seller to receive loan proceeds at the time of sale—and even in conjunction with the sale—and not be taxed on the loan proceeds.

Unlike the standard installment sale he did with his father — also known as seller carryback financing — this planning method allowed Dr. Wallace to receive close to $935,000 in tax-free cash at closing and defer the taxes for decades.

How can the government let this happen? Actually, it is encouraged, which is why installment sales have been legal since 1913. Implementing such a sale can actually increase taxes paid on the property sold because it is freed for further development. For example, if you own raw land, your property taxes are probably pretty low. If, however, I purchased that same property from you and built a shopping center on it, my property taxes would skyrocket.

Further, and this may be hard for many to believe, the government understands how liquidity lubricates the engine of our economy. They include “taxpayer benefits” such as this in the tax code to encourage asset sales, thereby increasing the speed with which cash circulates (the multiplier effect) and to unlock illiquid capital.