Regarding: 

"I see those all the time for real-estate deals:  The payments are based on 15-year amortization, but there is a balloon payment requiring the balance to be paid sooner.  Only difference here is that there are three balloons. " 

For a deal amortized over 15 years with a balloon payment, your installment reporting would include the respective principal amounts received in the beginning years AND the balloon payment for the balloon-payment year.

Here, the loans were practically amortized (and paid) over 15 years and you reported the "balloon payments" in the first three years.  How could that be the same as your real estate example???

Form: installment payments in three years.

Substance: installment payments in 15 years

Let's twist the facts.  The seller found out he had cancer with a life expectancy of 3 years and he had a HUGE capital loss carryover from his Enron and JC Penny investments.  He accelerated the capital gain from the sale over three years, and used up the CLCO.  His heirs inherited the note and pay NO tax on the principal receipts.  Based on these facts, should a responsible IRS agent reverse the installment sales from 3 back to 15 years, even if there were three sets of cancelled checks, and pursue the angle that those were collapsible transactions, made up for tax evasion purposes?

As I said, I don't dwell on facts not given in this forum.  My twisted example (pun intended) was just to illustrate the difference between the real estate with a balloon payment deal from the question in issue.

Billable work calls, and I digress.