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26 U.S.C. § 1274A — Special rules for certain transactions where stated principal amount does not exceed $2,800,000
Federal law — U.S. Code and appendices · legal_authorities
**(a) Lower discount rate** In the case of any qualified debt instrument, the discount rate used for purposes of sections 483 and 1274 shall not exceed 9 percent, compounded semiannually.
**(b) Qualified debt instrument defined** For purposes of this section, the term “qualified debt instrument” means any debt instrument given in consideration for the sale or exchange of property (other than new section 38 property within the meaning of section 48(b), as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of such instrument does not exceed $2,800,000.
**(c) Election to use cash method where stated principal amount does not exceed $2,000,000**
(1) **In general** — In the case of any cash method debt instrument—
(A) section 1274 shall not apply, and
(B) interest on such debt instrument shall be taken into account by both the borrower and the lender under the cash receipts and disbursements method of accounting.
(2) **Cash method debt instrument** — For purposes of paragraph (1), the term “cash method debt instrument” means any qualified debt instrument if—
(A) the stated principal amount does not exceed $2,000,000,
(B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged,
(C) section 1274 would have applied to such instrument but for an election under this subsection, and
(D) an election under this subsection is jointly made with respect to such debt instrument by the borrower and lender.
(3) **Successors bound by election**
(A) *In general* — Except as provided in subparagraph (B), paragraph (1) shall apply to any successor to the borrower or lender with respect to a cash method debt instrument.
(B)
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Source location: Title 26, Chapter 1, § 1274A; chapter-001-normal-taxes-and-surtaxes.md
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**(a) Lower discount rate** In the case of any qualified debt instrument, the discount rate used for purposes of sections 483 and 1274 shall not exceed 9 percent, compounded semiannually.
**(b) Qualified debt instrument defined** For purposes of this section, the term “qualified debt instrument” means any debt instrument given in consideration for the sale or exchange of property (other than new section 38 property within the meaning of section 48(b), as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) if the stated principal amount of such instrument does not exceed $2,800,000.
**(c) Election to use cash method where stated principal amount does not exceed $2,000,000**
(1) **In general** — In the case of any cash method debt instrument—
(A) section 1274 shall not apply, and
(B) interest on such debt instrument shall be taken into account by both the borrower and the lender under the cash receipts and disbursements method of accounting.
(2) **Cash method debt instrument** — For purposes of paragraph (1), the term “cash method debt instrument” means any qualified debt instrument if—
(A) the stated principal amount does not exceed $2,000,000,
(B) the lender does not use an accrual method of accounting and is not a dealer with respect to the property sold or exchanged,
(C) section 1274 would have applied to such instrument but for an election under this subsection, and
(D) an election under this subsection is jointly made with respect to such debt instrument by the borrower and lender.
(3) **Successors bound by election**
(A) *In general* — Except as provided in subparagraph (B), paragraph (1) shall apply to any successor to the borrower or lender with respect to a cash method debt instrument.
(B) *Exception where lender transfers debt instrument to accrual method taxpayer* — If the lender (or any successor) transfers any cash method debt instrument to a taxpayer who uses an accrual method of accounting, this paragraph shall not apply with respect to such instrument for periods after such transfer.
(4) **Fair market value rule in potentially abusive situations** — In the case of any cash method debt instrument, section 483 shall be applied as if it included provisions similar to the provisions of section 1274(b)(3).
**(d) Other special rules**
(1) **Aggregation rules** — For purposes of this section—
(A) all sales or exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange, and
(B) all debt instruments arising from the same transaction (or a series of related transactions) shall be treated as 1 debt instrument.
(2) **Adjustment for inflation** — In the case of any debt instrument arising out of a sale or exchange during any calendar year after 1989, each dollar amount contained in the preceding provisions of this section shall be increased by an amount equal to—
(A) such amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 1988” for “calendar year 2016” in subparagraph (A)(ii) thereof.
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).
**(e) Regulations** The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including—
(1) regulations coordinating the provisions of this section with other provisions of this title,
(2) regulations necessary to prevent the avoidance of tax through the abuse of the provisions of subsection (c), and
(3) regulations relating to the treatment of transfers of cash method debt instruments.
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Federal law — U.S. Code and appendices · legal_authorities
**(a) In general** In the case of any debt instrument to which this section applies, for purposes of this subpart, the issue price shall be—
(1) where there is adequate stated interest, the stated principal amount, or
(2) in any other case, the imputed principal amount.
**(b) Imputed principal amount** For purposes of this section—
(1) **In general** — Except as provided in paragraph (3), the imputed principal amount of any debt instrument shall be equal to the sum of the present values of all payments due under such debt instrument.
(2) **Determination of present value** — For purposes of paragraph (1), the present value of a payment shall be determined in the manner provided by regulations prescribed by the Secretary—
(A) as of the date of the sale or exchange, and
(B) by using a discount rate equal to the applicable Federal rate, compounded semiannually.
(3) **Fair market value rule in potentially abusive situations**
(A) *In general* — In the case of any potentially abusive situation, the imputed principal amount of any debt instrument received in exchange for property shall be the fair market value of such property adjusted to take into account other consideration involved in the transaction.
(B) *Potentially abusive situation defined* — For purposes of subparagraph (A), the term “potentially abusive situation” means—
(i) a tax shelter (as defined in section 6662(d)(2)(C)(ii)), and
(ii) any other situation which, by reason of—
(I) recent sales transactions,
(II) nonrecourse financing,
(III) financing with a term in excess of the economic life of the property, or
(IV) other circumstances,
is of a type which the Secretary specifies by regulations as having potential for tax avoidance.
**(c) Debt instruments
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Federal law — U.S. Code and appendices · legal_authorities
**(a) Married individuals filing joint returns and surviving spouses** There is hereby imposed on the taxable income of—
(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and
(2) every surviving spouse (as defined in section 2(a)),
a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $36,90015% of taxable income. Over $36,900 but not over $89,150$5,535, plus 28% of the excess over $36,900. Over $89,150 but not over $140,000$20,165, plus 31% of the excess over $89,150. Over $140,000 but not over $250,000$35,928.50, plus 36% of the excess over $140,000. Over $250,000$75,528.50, plus 39.6% of the excess over $250,000.
**(b) Heads of households** There is hereby imposed on the taxable income of every head of a household (as defined in section 2(b)) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $29,60015% of taxable income. Over $29,600 but not over $76,400$4,440, plus 28% of the excess over $29,600. Over $76,400 but not over $127,500$17,544, plus 31% of the excess over $76,400. Over $127,500 but not over $250,000$33,385, plus 36% of the excess over $127,500. Over $250,000$77,485, plus 39.6% of the excess over $250,000.
**(c) Unmarried individuals (other than surviving spouses and heads of households)** There is hereby imposed on the taxable income of every individual (other than a surviving spouse as defined in section 2(a) or the head of a household as defined in section 2(b)) who is not a married individual (as defined in section 7703) a tax determined in accordance with the following table: If taxable income is:The tax is: Not over $22,10015% of taxable income. Over $22,100 but not over $53,50
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Federal law — U.S. Code and appendices · legal_authorities
Page 2392
TITLE 26—INTERNAL REVENUE CODE
§ 1274A
EFFECTIVE DATE OF 1989 AMENDMENT
Amendment by Pub. L. 101–239 applicable to returns
the due date for which (determined without regard to
extensions) is after Dec. 31, 1989, see section 7721(d) of
Pub. L. 101–239, set out as a note under section 461 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99–514 effective, except as oth-
erwise provided, as if included in the provisions of the
Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which
such amendment relates, see section 1881 of Pub. L.
99–514, set out as a note under section 48 of this title.
EFFECTIVE DATE OF 1985 AMENDMENT
Pub. L. 99–121, title I, § 105(a), Oct. 11, 1985, 99 Stat.
510, as amended by Pub. 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 sections 101 and 102 [enacting
section 1274A and amending this section and sections
280G and 483 of this title] shall apply to sales and ex-
changes after June 30, 1985, in taxable years ending
after such date. The amendment made by section 2 of
Public Law 98–612 [amending section 44(b) of Pub. L.
98–369, set out as a note under section 1271 of this title]
shall not apply to sales and exchanges after June 30,
1985, in taxable years ending after such date.
‘‘(2) REGULATORY
AUTHORITY
TO
ESTABLISH
LOWER
RATE.—Section 1274(d)(1)(D) of the Internal Revenue
Code of 1986 [formerly I.R.C. 1954], as added by section
101(b), shall apply as if included in the amendments
made by section 41 of the Tax Reform Act of 1984 [Pub.
L. 98–369, see Effective Date note set out under section
1271 of this title].’’
EFFECTIVE DATE
Section applicable to taxable years ending after July
18, 1984, and a
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