Amended 1984, 1985
- 1985 Pub. L. 99-121 Pub. L. 99–121, § 102(c)(1), (3), redesignated subsec. (h) as (g) and amended it generally, designating existing undesignated cross reference as par. (3), and adding pars. (1) and (2). Former subsec. (g) redesignated (f).
- 1984 Pub. L. 98-369 Pub. L. 98–369 added subsec. (h).
Cases: Vorbleski v. Commissioner, 589 F.2d 123 (3rd Cir. 1978); Solomon v. Commissioner, 570 F.2d 28 (2d Cir. 1977); Ballard v. Commissioner, 854 F.2d 185 (7th Cir. 1988)
Final rules 1
(a) Amount constituting interest For purposes of this title, in the case of any payment—
(1) under any contract for the sale or exchange of any property, and
(2) to which this section applies,
there shall be treated as interest that portion of the total unstated interest under such contract which, as determined in a manner consistent with the method of computing interest under section 1272(a), is properly allocable to such payment.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 amended subsec. (a) generally, substituting “For purposes of this title, in the case of any payment (1) under any contract for the sale or exchange of any property, and (2) to which this section applies, there shall be treated as interest that portion of the total unstated interest under such contract which, as determined in a manner consistent with the method of computing interest under section 1272(a), is properly allocable to such payment” for “For purposes of this title, in the case of any contract for the sale or exchange of property there shall be treated as interest that part of a payment to which this section applies which bears the same ratio to the amount of such payment as the total unstated interest under such contract bears to the total of the payments to which this section applies which are due under such contract”.
(b) Total unstated interest For purposes of this section, the term “total unstated interest” means, with respect to a contract for the sale or exchange of property, an amount equal to the excess of—
Amended 1976, 1984, 1985
- 1985 Pub. L. 99-121 Pub. L. 99–121, § 101(a)(2)(A), struck out “120 percent of” after “discount rate equal to” in closing provisions.
- 1984 Pub. L. 98-369 Pub. L. 98–369 amended subsec. (b) generally, substituting provisions directing that the present value of a payment be determined under the rules of section 1274(b)(2) using a discount rate equal to 120 percent of the applicable Federal rate determined under section 1274(d) for provisions which had directed that the present value of a payment be determined, as of the date of the sale or exchange, by discounting such payment at the rate, and in the manner, provided in regulations prescribed by the Secretary and that such regulations provide for discounting on the basis of 6-month brackets and provide that the present value of any interest payment due not more than 6 months after the date of the sale or exchange was to have been an amount equal to 100 percent of such payment.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Cited by 5
(1) the sum of the payments to which this section applies which are due under the contract, over
(2) the sum of the present values of such payments and the present values of any interest payments due under the contract.
For purposes of the preceding sentence, the present value of a payment shall be determined under the rules of section 1274(b)(2) using a discount rate equal to the applicable Federal rate determined under section 1274(d).
(c) Payments to which subsection (a) applies
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 substituted “subsection (a) applies” for “section applies” in heading.
(1) In general Except as provided in subsection (d), this section shall apply to any payment on account of the sale or exchange of property which constitutes part or all of the sales price and which is due more than 6 months after the date of such sale or exchange under a contract—
(A) under which some or all of the payments are due more than 1 year after the date of such sale or exchange, and
Cited by 2
(B) under which there is total unstated interest.
Amended 1976, 1985
- 1985 Pub. L. 99-121 Pub. L. 99–121, § 101(a)(2)(B), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “under which, using a discount rate equal to 110 percent of the applicable Federal rate determined under section 1274(d), there is total unstated interest.”
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 substituted “under which, using a discount rate equal to 110 percent of the applicable Federal rate determined under section 1274(d), there is total unstated interest” for “under which, using a rate provided by regulations prescribed by the Secretary for purposes of this subparagraph, there is total unstated interest”, in subpar. (B), and struck out provision formerly set out following subpar. (B) which had directed that any rate prescribed for determining whether there was total unstated interest for purposes of subpar. (B) be at least one percentage point lower than the rate prescribed for purposes of subsec. (b)(2).
(2) Treatment of other debt instruments For purposes of this section, a debt instrument of the purchaser which is given in consideration for the sale or exchange of property shall not be treated as a payment, and any payment due under such debt instrument shall be treated as due under the contract for the sale or exchange.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 substituted “Treatment of other debt instruments” for “Treatment of other evidence of indebtedness” in heading and, in text, substituted “a debt instrument of the purchaser which is given in consideration for the sale or exchange of property shall not be treated as a payment, and any payment due under such debt instrument” for “an evidence of indebtedness of the purchaser given in consideration for the sale or exchange of property shall not be considered a payment, and any payment due under such evidence of indebtedness”.
Cited by 1
(3) Debt instrument defined For purposes of this subsection, the term “debt instrument” has the meaning given such term by section 1275(a)(1).
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 added par. (3).
(d) Exceptions and limitations
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 amended subsec. (d) generally, substituting provisions relating to exceptions and limitations for provisions which related to payments indefinite as to time, liability, or amount.
Cited by 2
(1) Coordination with original issue discount rules This section shall not apply to any debt instrument for which an issue price is determined under section 1273(b) (other than paragraph (4) thereof) or section 1274.
(2) Sales prices of $3,000 or less This section shall not apply to any payment on account of the sale or exchange of property if it can be determined at the time of such sale or exchange that the sales price cannot exceed $3,000.
(3) Carrying charges In the case of the purchaser, the tax treatment of amounts paid on account of the sale or exchange of property shall be made without regard to this section if any such amounts are treated under section 163(b) as if they included interest.
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514 substituted “for which an issue price is determined under section 1273(b) (other than paragraph (4) thereof) or section 1274” for “to which section 1272 applies”.
(4) Certain sales of patents In the case of any transfer described in section 1235(a) (relating to sale or exchange of patents), this section shall not apply to any amount contingent on the productivity, use, or disposition of the property transferred.
(e) Maximum rate of interest on certain transfers of land between related parties
Amended 1976, 1984, 1985
- 1985 Pub. L. 99-121 Pub. L. 99–121, § 102(c)(1), (2), redesignated subsec. (f) as (e), and as so redesignated substituted “6 percent” for “7 percent” in par. (1). Former subsec. (e), which related to the interest rates in the case of the sales of principal residences or farm lands, was struck out.
- 1984 Pub. L. 98-369 Pub. L. 98–369 amended subsec. (e) generally, substituting provisions relating to interest rates in case of sale of principal residence or farm land for provision relating to changes in terms of contract.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
Cited by 7
(1) In general In the case of any qualified sale, the discount rate used in determining the total unstated interest rate under subsection (b) shall not exceed 6 percent, compounded semiannually.
Cited by 2
(2) Qualified sale For purposes of this subsection, the term “qualified sale” means any sale or exchange of land by an individual to a member of such individual’s family (within the meaning of section 267(c)(4)).
(3) $500,000 limitation Paragraph (1) shall not apply to any qualified sale between individuals made during any calendar year to the extent that the sales price for such sale (when added to the aggregate sales price for prior qualified sales between such individuals during the calendar year) exceeds $500,000.
(4) Nonresident alien individuals Paragraph (1) shall not apply to any sale or exchange if any party to such sale or exchange is a nonresident alien individual.
(f) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section including regulations providing for the application of this section in the case of—
Amended 1976, 1984, 1985
- 1985 Pub. L. 99-121 Pub. L. 99–121, § 102(c)(1), redesignated subsec. (g) as (f). Former subsec. (f) redesignated (e).
- 1984 Pub. L. 98-369 Pub. L. 98–369 amended subsec. (f) generally, substituting provisions relating to maximum rate of interest on certain transfers of land between related parties for provisions which related to exceptions and limitations now covered in subsec. (d) of this section.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(b)(3)(B), substituted “all of the gain, if any, on such” for “no part of any gain on such” and “ordinary income” for gain from the sale or exchange of property other than a capital asset”.
Cited by 1
(1) any contract for the sale or exchange of property under which the liability for, or the amount or due date of, a payment cannot be determined at the time of the sale or exchange, or
(2) any change in the liability for, or the amount or due date of, any payment (including interest) under a contract for the sale or exchange of property.
(g) Cross references
Amended 1981, 1983, 1984, 1985
- 1985 Pub. L. 99-121 Pub. L. 99–121, § 102(c)(1), (3), redesignated subsec. (h) as (g) and amended it generally, designating existing undesignated cross reference as par. (3), and adding pars. (1) and (2). Former subsec. (g) redesignated (f).
- 1984 Pub. L. 98-369 Pub. L. 98–369 amended subsec. (g) generally, substituting provisions which related to calling for the promulgation of regulations by the Secretary for provisions which related to the maximum rate of interest on certain transfers of land between related parties now covered in subsec. (f) of this section.
- 1983 Pub. L. 97-448 Pub. L. 97–448 substituted “Paragraph (1)” for “This section”.
- 1981 Pub. L. 97-34 Pub. L. 97–34 added subsec. (g).
(1) For treatment of assumptions, see section l274(c)(4).
(2) For special rules for certain transactions where stated principal amount does not exceed $2,800,000, see section 1274A.
(3) For special rules in case of the borrower under certain loans for personal use, see section 1275(b).