26 U.S.C. § 1274A — Special rules for certain transactions

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 applicable to sales or exchanges after Dec. 31, 1984, but not applicable to any sale or exchange pur- suant to a written contract which was binding on Mar. 1, 1984, and at all times thereafter before the sale or ex- change, see section 44 of Pub. L. 98–369, set out as a note under section 1271 of this title. 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 Pub. 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 Pub. L. 99–514, as amended, set out as a note under section 401 of this title. TRANSITIONAL RULE FOR PURPOSES OF IMPUTED INTEREST RULES Provisions respecting treatment of debt instruments received in exchange for property, relating to special rules for sales after Dec. 31, 1984, and before July 1, 1985, general rule for assumptions of loans, exception for as- sumptions of loans made on or before Oct. 15, 1984, and exception for assumptions of loans with respect to cer- tain property, see section 44(b)(4)–(7) of Pub. L. 98–369, as amended, set out as an Effective Date note under section 1271 of this title. § 1274A. Special rules for certain transactions where stated principal amount does not ex- ceed $2,800,000 (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, com- pounded semiannually. (b) Qualified debt instrument defined For purposes of this section, the term ‘‘quali- fied debt instrument’’ means any debt instru- ment given in consideration for the sale or ex- change 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 enact- ment of the Revenue Reconciliation Act of 1990) if the stated principal amount of such instru- ment 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 instru- ment— (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 ex- changed, (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 in- strument 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 in- strument to accrual method taxpayer If the lender (or any successor) transfers any cash method debt instrument to a tax- payer who uses an accrual method of ac- counting, this paragraph shall not apply with respect to such instrument for periods after such transfer. (4) Fair market value rule in potentially abu- sive situations In the case of any cash method debt instru- ment, section 483 shall be applied as if it in- cluded 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 ex- change, and (B) all debt instruments arising from the same transaction (or a series of related transactions) shall be treated as 1 debt in- strument. Page 2393 TITLE 26—INTERNAL REVENUE CODE § 1275 (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 deter- mined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting ‘‘calendar year 1988’’ for ‘‘cal- endar 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 pro- visions of subsection (c), and (3) regulations relating to the treatment of transfers of cash method debt instruments. (Added Pub. L. 99–121, title I, § 102(a), Oct. 11, 1985, 99 Stat. 506; amended Pub. L. 101–508, title XI, § 11813(b)(22), Nov. 5, 1990, 104 Stat. 1388–555; Pub. L. 104–188, title I, § 1704(t)(62), Aug. 20, 1996, 110 Stat. 1890; Pub. L. 115–97, title I, § 11002(d)(10), Dec. 22, 2017, 131 Stat. 2062.) INFLATION ADJUSTED ITEMS FOR CERTAIN YEARS For inflation adjustment of certain items in this section, see Revenue Rulings listed in a table below and Revenue Procedures listed in a table under section 1 of this title. Editorial Notes REFERENCES IN TEXT The date of the enactment of the Revenue Reconcili- ation Act of 1990, referred to in subsec. (b), is the date of enactment of Pub. L. 101–508, which was approved Nov. 5, 1990. AMENDMENTS 2017—Subsec. (d)(2). Pub. L. 115–97 amended par. (2) generally. Prior to amendment, text read as follows: ‘‘(A) IN GENERAL.—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 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 in- crease is a multiple of $50, such increase shall be in- creased to the nearest multiple of $100). ‘‘(B) INFLATION ADJUSTMENT.—For purposes of sub- paragraph (A), the inflation adjustment for any cal- endar year is the percentage (if any) by which— ‘‘(i) the CPI for the preceding calendar year exceeds ‘‘(ii) the CPI for calendar year 1988. 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.’’ 1996—Subsec. (c)(1)(B). Pub. L. 104–188 substituted ‘‘instrument’’ for ‘‘instument’’. 1990—Subsec. (b). Pub. L. 101–508 inserted ‘‘, as in ef- fect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990’’ after ‘‘section 48(b)’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, see section 11002(e) of Pub. L. 115–97, set out as a note under section 1 of this title. EFFECTIVE DATE OF 1990 AMENDMENT Amendment by Pub. L. 101–508 applicable to property placed in service after Dec. 31, 1990, but not applicable to any transition property (as defined in section 49(e) of this title), any property with respect to which qualified progress expenditures were previously taken into ac- count under section 46(d) of this title, and any property described in section 46(b)(2)(C) of this title, as such sec- tions were in effect on Nov. 4, 1990, see section 11813(c) of Pub. L. 101–508, set out as a note under section 45K of this title. EFFECTIVE DATE Section applicable to sales and exchanges after June 30, 1985, in taxable years ending after such date, see sec- tion 105(a)(1) of Pub. L. 99–121, set out as an Effective Date of 1985 Amendment note under section 1274 of this title. SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. INFLATION ADJUSTED ITEMS FOR CERTAIN YEARS Per Revenue Procedure 2018–57, after 2018, a separate Revenue Ruling relating to inflation-adjusted amounts under this section will not be published. Starting with 2019, see the table of Revenue Procedures set out under section 1 of this title. Provisions relating to inflation adjustment of items in this section for years before 2019 were contained in the following: 2018—Revenue Ruling 2018–11. 2017—Revenue Ruling 2016–30. 2016—Revenue Ruling 2015–24. 2015—Revenue Ruling 2014–30. 2014—Revenue Ruling 2013–23. 2013—Revenue Ruling 2012–33. 2012—Revenue Ruling 2011–27. 2011—Revenue Ruling 2010–30. 2010—Revenue Ruling 2010–2. 2009—Revenue Ruling 2008–52. 2008—Revenue Ruling 2008–3. 2007—Revenue Ruling 2007–4. 2006—Revenue Ruling 2005–76. 2005—Revenue Ruling 2004–107. 2004—Revenue Ruling 2003–119. 2003—Revenue Ruling 2002–79. 2002—Revenue Ruling 2001–65. 2001—Revenue Ruling 2000–55. 2000—Revenue Ruling 99–50. 1999—Revenue Ruling 98–58. 1998—Revenue Ruling 97–56. 1997—Revenue Ruling 96–63. 1996—Revenue Ruling 96–4. § 1275. Other definitions and special rules (a) Definitions For purposes of this subpart—