Par. 2. Section 1.267(a)-1 is amended by adding new paragraphs (d) and (e) to read as follows:
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(d) Rules for partnerships under the Tax Reform Act of 1984 —(1) In general. Paragraphs (d)(2) and (d)(3) of this section provide rules under section 267(a) and related provisions, as amended by section 174 of the Tax Reform Act of 1984, Public Law 98-369, 98 Stat. 494, 705 (1984), applicable specifically to partnerships for taxable years ending on or after [DATE OF PUBLICATION OF FINAL RULE IN THE Federal Register ]. Section 1.267(a)-2T(c) does not apply to taxable years ending on or after [DATE OF PUBLICATION OF FINAL RULE IN THE Federal Register ].
(2) Application of section 267(a) to disallow losses and defer otherwise deductible amounts at the partnership (entity) level. If a loss realized by a partnership from a sale or exchange of property is disallowed under section 267(a)(1), that loss does not enter into the computation of the partnership's taxable income. If an amount that otherwise would be deductible by a partnership is deferred by section 267(a)(2), that amount does not enter into the computation of the partnership's taxable income until the taxable year of the partnership in which falls the day on which the amount is includible in the gross income of the person to whom payment of the amount is made.
(3) Application of section 267(e)(5)(C)(ii). The phrase incurred at an annual rate not in excess of 12 percent in section 267(e)(5)(C)(ii) refers to interest that accrues but is not includible in the income of the person to whom payment is to be made during the taxable year of the payor. Thus, in determining whether the requirements of section 267(e)(5) (providing an exception to certain provisions of section 267 for certain expenses and interest of partnerships owning low income housing) are met with respect to a transaction, the requirement of section 267(e)(5)(C)(ii) will be satisfied, even though the total interest (both stated and unstated) paid or accrued in any taxable year of the payor taxpayer exceeds 12 percent, if the interest in excess of 12 percent per annum, compounded semi-annually, on the outstanding loan balance (principal and accrued but unpaid interest) is includible in the income of the person to whom payment is to be made no later than the last day of such taxable year of the payor taxpayer.
(e) Applicability date. Paragraph (d) of this section applies to taxable years ending on or after [DATE OF PUBLICATION OF FINAL RULE IN THE FEDERAL REGISTER ].