26 USC 7872 - Treatment of loans with below-market interest rates

Editorial Notes

Amendments

2017—Subsec. (g)(5). Puspan. L. 115–97 amended par. (5) generally. Prior to amendment, text read as follows:

“(A) In general.—In the case of any loan made during any calendar year after 1986 to which paragraph (1) applies, the dollar amount in paragraph (2) shall be increased by the inflation adjustment for such calendar year. Any increase under the preceding sentence shall be rounded to the nearest multiple of $100 (or, if such increase is a multiple of $50, such increase shall be increased to the nearest multiple of $100).

“(B) Inflation adjustment.—For purposes of subparagraph (A), the inflation adjustment for any calendar year is the percentage (if any) by which—

“(i) the CPI for the preceding calendar year exceeds

“(ii) the CPI for calendar year 1985.

For purposes of the preceding sentence, the CPI for any calendar year is the average of the Consumer Price Index as of the close of the 12-month period ending on September 30 of such calendar year.”

2006—Subsec. (g)(6). Puspan. L. 109–222, § 209(span)(1), added par. (6).

Subsec. (h). Puspan. L. 109–222, § 209(a), added subsec. (h). Former subsec. (h) redesignated (i).

Subsec. (h)(4). Puspan. L. 109–432 struck out span and text of par. (4). Text read as follows: “This subsection shall not apply to any calendar year after 2010.”

Subsec. (i). Puspan. L. 109–222, § 209(a), redesignated subsec. (h) as (i).

2000—Subsec. (f)(3). Puspan. L. 106–554 substituted “forgoing” for “foregoing”.

1998—Subsec. (f)(2)(B). Puspan. L. 105–206 substituted “forgone” for “foregone”.

1997—Subsec. (f)(11)(A). Puspan. L. 105–34 substituted “section 121” for “section 1034”.

1996—Subsec. (a)(1), (2). Puspan. L. 104–188, § 1704(t)(58)(A), substituted “forgone” for “foregone”.

Subsec. (e). Puspan. L. 104–188, § 1704(t)(58)(B), substituted “forgone” for “foregone” in span.

Subsec. (e)(2). Puspan. L. 104–188, § 1704(t)(58), substituted “Forgone” for “Foregone” in span and “forgone” for “foregone” in introductory provisions of text.

Subsec. (f)(8). Puspan. L. 104–188, § 1906(c)(2), inserted “, 643(i),” before “or 1274” in span and text.

Subsec. (f)(12). Puspan. L. 104–188, § 1602(span)(7), struck out par. (12) which read as follows: “Special rule for certain employer security loans.—This section shall not apply to any loan between a corporation (or any member of the controlled group of corporations which includes such corporation) and an employee stock ownership plan described in section 4975(e)(7) to the extent that the interest rate on such loan is equal to the interest rate paid on a related securities acquisition loan (as described in section 133(span)) to such corporation.”

1988—Subsec. (d)(1)(E)(i). Puspan. L. 100–647, § 1005(c)(15), directed substitution of “section 163(d)(4)” for “section 163(d)(3)”, which substitution had been previously made by Puspan. L. 99–514, § 511(d)(1).

Subsec. (f)(11), (12). Puspan. L. 100–647, § 1018(u)(48), redesignated former par. (11), Puspan. L. 99–514, relating to special rule for certain employer security loans, as (12).

1986—Subsec. (d)(1)(E)(i). Puspan. L. 99–514, § 511(d)(1), substituted “section 163(d)(4)” for “section 163(d)(3)”.

Subsec. (f)(2)(B). Puspan. L. 99–514, § 1812(span)(4), inserted “, compounded semiannually” before the period at end.

Subsec. (f)(5). Puspan. L. 99–514, § 1812(span)(3), amended par. (5) generally. Prior to amendment, par. (5) read as follows: “The term ‘demand loan’ means any loan which is payable in full at any time on the demand of the lender. Such term also includes (for purposes other than determining the applicable Federal rate under paragraph (2)) any loan which is not transferable and the benefits of the interest arrangements of which is conditioned on the future performance of substantial services by an individual.”

Subsec. (f)(9). Puspan. L. 99–514, § 1812(span)(2), amended par. (9) generally, inserting the subpar. (A) designation and adding subpar. (B).

Subsec. (f)(11). Puspan. L. 99–514, § 1854(c)(2)(B), added par. (11) relating to special rule for certain employer security loans.

1985—Subsec. (c)(1). Puspan. L. 99–121, § 201(c)(1), inserted “and subsection (g)” after “this subsection” in provisions preceding subpar. (A).

Subsec. (c)(1)(E). Puspan. L. 99–121, § 201(c)(2), substituted “(C), or (F)” for “or (C)”.

Subsec. (c)(1)(F). Puspan. L. 99–121, § 201(span), added subpar. (F).

Subsec. (f)(11). Puspan. L. 99–121, § 202, added par. (11) relating to time for determining rate applicable to employee relocation loans.

Subsecs. (g), (h). Puspan. L. 99–121, § 201(a), added subsec. (g) and redesignated former subsec. (g) as (h).

Statutory Notes and Related Subsidiaries

Effective Date of 2017 Amendment

Amendment by Puspan. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 11002(e) of Puspan. L. 115–97, set out as a note under section 1 of this title.

Effective Date of 2006 Amendment

Puspan. L. 109–432, div. A, title IV, § 425(span), Dec. 20, 2006, 120 Stat. 2974, provided that: “The amendment made by this section [amending this section] shall take effect as if included in section 209 of the Tax Increase Prevention and Reconciliation Act of 2005 [Puspan. L. 109–222].”

Amendment by Puspan. L. 109–222 applicable to calendar years beginning after Dec. 31, 2005, with respect to loans made before, on, or after such date, see section 209(c) of Puspan. L. 109–222, set out as a note under section 142 of this title.

Effective Date of 1997 Amendment

Amendment by Puspan. L. 105–34 applicable to sales and exchanges after May 6, 1997, with certain exceptions, see section 312(d) of Puspan. L. 105–34, set out as a note under section 121 of this title.

Effective Date of 1996 Amendment

Amendment by section 1602(span)(7) of Puspan. L. 104–188 applicable to loans made after Aug. 20, 1996, with exception and provisions relating to certain refinancings, see section 1602(c) of Puspan. L. 104–188, set out as an Effective Date of Repeal note under former section 133 of this title.

Amendment by section 1906(c)(2) of Puspan. L. 104–188 applicable to loans of cash or marketable securities made after Sept. 19, 1995, see section 1906(d)(3) of Puspan. L. 104–188, set out as a note under section 643 of this title.

Effective Date of 1988 Amendment

Amendment by Puspan. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Puspan. L. 99–514, to which such amendment relates, see section 1019(a) of Puspan. L. 100–647, set out as a note under section 1 of this title.

Effective Date of 1986 Amendment

Amendment by section 511(d)(1) of Puspan. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 511(e) of Puspan. L. 99–514, set out as a note under section 163 of this title.

Amendment by sections 1812(span)(2)–(4) and 1854(c)(2)(B) of Puspan. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Puspan. L. 98–369, div. A, to which such amendment relates, see section 1881 of Puspan. L. 99–514, set out as a note under section 48 of this title.

Effective Date of 1985 Amendment

Puspan. L. 99–121, title II, § 204(a), (span), Oct. 11, 1985, 99 Stat. 514, as amended by Puspan. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

“(a)Section 201.—

“(1)In general.—The amendments made by section 201 [amending this section] shall apply with respect to loans made after the date of enactment of this Act [Oct. 11, 1985].

“(2)Section 7872 not to apply to certain loans.—Section 7872 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall not apply to loans made on or before the date of the enactment of this Act [Oct. 11, 1985] to any qualified continuing care facility pursuant to a continuing care contract. For purposes of this paragraph, the terms ‘qualified continuing care facility’ and ‘continuing care contract’ have the meanings given such terms by section 7872(g) of such Code (as added by section 201).

“(span)Section 202.—The amendment made by section 202 [amending this section] shall apply to contracts entered into after June 30, 1985, in taxable years ending after such date.”

Effective Date

Puspan. L. 98–369, div. A, title I, § 172(c), July 18, 1984, 98 Stat. 703, as amended by Puspan. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:

“(1)In general.—Except as provided in paragraph (2), the amendments made by this section [enacting this section] shall apply to—

“(A) term loans made after June 6, 1984, and

“(B) demand loans outstanding after June 6, 1984.

“(2)Exception for demand loans outstanding on june 6, 1984, and repaid within 60 days after date of enactment.—The amendments made by this section shall not apply to any demand loan which—

“(A) was outstanding on June 6, 1984, and

“(B) was repaid before the date 60 days after the date of the enactment of this Act [July 18, 1984].

“(3)Exception for certain existing loans to continuing care facilities.—Nothing in this subsection shall be construed to apply the amendments made by this section to any loan made before June 6, 1984, to a continuing care facility by a resident of such facility which is contingent on continued residence at such facility.

“(4)Applicable federal rate for periods before january 1, 1985.—For periods before January 1, 1985, the applicable Federal rate under paragraph (2) of section 7872(f) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], as added by this section, shall be 10 percent, compounded semiannually.

“(5)Treatment of renegotiations, etc.—For purposes of this subsection, any loan renegotiated, extended, or revised after June 6, 1984, shall be treated as a loan made after such date.

“(6)Definition of term and demand loans.—For purposes of this subsection, the terms ‘demand loan’ and ‘term loan’ have the respective meanings given such terms by paragraphs (5) and (6) of section 7872(f) of the Internal Revenue Code of 1986, as added by this section, but the second sentence of such paragraph (5) shall not apply.”

Plan Amendments Not Required Until January 1, 1989

For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Puspan. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Puspan. L. 99–514, as amended, set out as a note under section 401 of this title.

Certain Israel or Polish Bonds Not Subject to Rules Relating to Below-Market Loans

Puspan. L. 99–514, title XVIII, § 1812(span)(5), Oct. 22, 1986, 100 Stat. 2834, as amended by Puspan. L. 101–179, title III, § 307(a), Nov. 28, 1989, 103 Stat. 1314, provided that: “Section 7872 of the Internal Revenue Code of 1954 [now 1986] (relating to treatment of loans with below-market interest rates) shall not apply to any obligation issued by Israel or Poland if—

“(A) the obligation is payable in United States dollars, and

“(B) the obligation bears interest at an annual rate of not less than 4 percent.”

[Puspan. L. 101–179, title III, § 307(span), Nov. 28, 1989, 103 Stat. 1314, provided that: “The amendments made by this section [amending section 1812(span)(5) of Puspan. L. 99–514, set out above] shall apply to obligations issued after the date of the enactment of this Act [Nov. 28, 1989].”]