Fi-165-84 (nprm)

d.

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r

I

F d e d R d r b t I VoL W. No. 101 I T~tadrp.Augurt 2h 1985 f ' Pmpo~edRultr
8 CFR P-1,

-

m, 23,md Sj md W

[U-1IW)

blow-Ylrk.t Lornl

r m mb

s z a (not r

r a d R.vnmun ~crv~w

toll-k

-EMTwV

tuntion. nu.in fmily or 4 h h
miturtionr, btlow-mdai l o w h
wed which purported to haw I m
rflect of avoiding tnxrtlon under chr
p ~ ~ ht r w
t rular md deflecting i w m a

w!iY

hterent pawtat L t
h u w of* ud
dtrnlnd -1
h a m p u l d mmdy 4
pnerdly fi mltd w hmrlwnd
h c t m h t '~hr
hiprymcnt h thm urr of mb &

#. hpow

-11).

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,

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84Jgwad
.. . a
d
d IOBD mfidblbhtbpurp~wd
T h I documcnl conlminr p m p o ~ d
e)l.rrerm of
lmputd wf.r ' ~ ~ i d i "a@
l ' P R d ~ ~ ~ * ~c ~~ ~ ? ~
amendmmtr 10 the Incoma Tax
, by rhr kndrr to tb* b m t k.,.
Lb*Inlvmdiuydb.Ipldradtb
dclrtmined in n c c o r d . ~d t h t
b , hYO lo- willbrr+rmchlrcd"asw
RtguJrtionr(aCFR Pad 1). tbr Entat.
10.n madm d h d y h b t m th 1tnd.r
rubrttnu o t tbr trmmmctim ?W '
Tax Refi~tiolu[aCFR Pul tD), thr
and th,hrowm.
Glh t r + Rtdadoal (26mP M SB) .. errmp!c fhr-banmfwb b t d u a
m q t ~ t f statn
l ~ ~brt
)
8
'
md tht bd~m
T u Rqdrtloau eFll if thm bumaction h b rubPart $3) under a d o a 7WZ d Ib.
wilhja
fl ...:
10- htww M h d r p s a d w
~n~~~
had p~m
tor whom t
b
provhi- ob &, WLand lt tr b m t d
Intemml Revmum Coda d 183C l%i~
rr cpmpnutlm P tha purporr d !k.: b d m ~ h a- i ~ c Wp m m
document also amen& tbr Tmbh d
t m n ~ e t i o ob tbfi m e ~d t7
rrnlcn am mubw lo wef3oa ?a
b
OMB b n t r o l N u m k n (a P u t
W P O ~d a u m
m).
fhtw rmtndmrntr m pmpoud b c o m p n u h Thh Ie id -.Ifm
ronputd I M W . ~
(La s.Y d
d a h t 8 IOU ID
hhdm
fi1j.m
new m.stim
dtm8nd loml b tramtad u mldk
whlehwdd bt wmt+dnm ~ f W ~ ~ r amn~wbl
by
p
d * wmn kddrd to the -8
d e M l und* cumnt 1i.w- A c - ~ ~ Y *
~ t n m l l yon
, h m k Yl. h th
rtetion 172 of thr T u R*~o= k
id
. .4 . .::: of lam louv. bcwwm. I b w mtdl-r ifrn t u p l y ~ r n 4h~Clladlbk .
1(
SBL
I aPs&
trrnafw b k i t e d ~m m&
rt 41 ihw
deprit to m indapndinl
in
I n k 4
:- the lorn b mda
..
~onntetl~a
dkb p.dd:'.
The timiw md rmual d b G
u
t
m
d cbrvicr~tbw dtporlt nlllk w b m toh i o r to Qa cnmctment d rcetfw 7872
thr
m k ofd m rn
ram8 t u p a y r n ured Intcmi-hr loam Lntrre8t pbymmtm by Iba ~ W W U to
(damr th.dr rm'nimh d e n m
the ltndrr d t p n d on t h m chumct.+&
or loan8 w~lhrn fntcrtmt rrtr b l o w t)u
current markml r ~ t (h
r rrcb cram,,
~ ~ r m o u n l b ~ n r f ~ r r s d b y & r l m n d ar b
pp~=blr).tbrSlnlmLmw*n~~t
"bdow-market l o w 7 wMcb p
d . tha b o m w t t and on wbrthm Ihr lorn b c a ~ bamounts ur [raputndy depr1t.d
*nL Ladepdmnm m n C n in~ the
1.m or d t m n d lThe 1mput.l
to sirsumreal wd-ntabIirhrd
0)
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-

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R-

Vol. 50. No. 181 I fiead!y, Auguwt 2D,

ordinmy count of buaincu and .
chrrrc~erircdby the paden 48
pr~prymrnturmthsr I a n rrhrndablt
deporitr. Gnrtqucady, U thiu

chrrrctcrirrtIan ir appmprl8ta &OH

'

rmounlr would not bl cubftef to rKtioa
7B7L me propcr drtinclloa bctwnn
wfundablt dipouilr and pnp8ymcnta Ir
r factual drtemhation'md to asrirC
Itt Senice in developing guidtlinen lor
&*wing this dlstinctlon. interented
parties a n invited to wmmenl on this
i.*rw.
Pmmnhips m d Pmmm

Thr Secir.c is rwore that rome
t ; ~ p i hp u~ t tnltrcd inlo belowmark*t loon*wiih ~~~~~~~p~ md
olhct trxpryctr have adtierod the
economic r nd t;x m u l l #,f?odcd8
bciow-rnerl:et lorn eanwctlan by
u!iliu*ng artnarshipr bod I t t u law4
rl;&t.rp:er lf i e p r o p e l
rtgvlr tionr p~avidethat ctrtain b I o s
market loan* madc by r prtncrrhip to
8r* mad' In comiderm'?n
primer
t3r rerviccr pttrorm* by
pmn
urhtr than in 5ir c a p c i t y a4 L mamba
o! h e parhershi will ba h a t e d rr, . .

''

'l

cor;rpcnrrtion-te*std'oaar
fw purponr
of sectian 7d?L
The l i d repulatima under Ation
:.ZZ wiU furlha: adrktrr t
b
.
mla:ionship or *cctiun 7Wt to
prrfntrship tron~actionasuch r r

purponed di,Libvtion, rhid dm
hc:r and drc~mstancc~
may pmptdy
.betharateriwd 38 l o o ~ , ~ n . S u v ibc t
ctnsidrring several propamrlr w
M
~!,eajlpiira ti+ of rfction 7832 4 .
~rsn5,rti~nrhrtrvecn paraan rnd
ps~rel;hipiwr.d :cqurrb i n ~ t r n t e d
t r * ; r c m 10 ,"bni! vrfllpn a-mu
~n lkir print.
Stpificnmi End torn
,: .
In additi09 to 'he h:*s c l r ~ m t n k d
~ ~ t q o r ofi ~blow-t.:*rktt
a
h8m '*
=rlion i 872!r)Il)(E) pmt idtr mpahtoq
a r r t l ~ ~In.r i ~apc!yl:>g
~
rvttion %2 tm
any otkpr be:cw-maLci lour H %
in!trwi arranpcm~nkof nlch lomn hrva
nrigr;rficanier(Kt~a~nyFcdct.ttu.
tirb~jityof &.e l e d r Or Lh* -..I:!
'

.

~ h rCunrcrrnca
:
~wrt
rccomplnyiq
rtrtm .
the tmx flefonn Act d
a m n l o L u lhin* that any bud that
reyulta in b e convcnlon of8
nnndeductlblt
Inlo

rquivalmtof Idcduaibk e x p m u ha8
an *fledon Iha e x Ifability o i rhe
borr~rrn
ot lender. The h d t m n u
.
krpo~
M h t r pmvidn (hat whclhct,m
tffect i m rignifiunt Ir dtttrmind in li*
,

.

ol~~I~htIaa~rnddreumrtanca
including:
- (1) ~ t ~ h ~ the
t h item,
~ r of i n k t and
dldllreon imcrntd by h e 1o.n o m n l

each othet

I:] The amount of ouch Ithml:
(31 The w8t to thr taxpaya d
complying w i l the proviaion. md .
(O h y nn.n.tu n n ~ r i.r
u dtdu
to s h e h u e the kanrrdm r#a belowmarket loan rather t h ~ nr loan mtb
trtc tqual to or v a t u tbra

lr.ttmmt a t

&a nppllcnble Ftdenl rstt rad I
payment by the lender lo tha hmm.n
The Sewice ia a w r n dnirmarow
mituationr in whlcb below-m&
1have
pctefitralto m n v e
nondeductible prnond exptnmmr LntO
the tquivalcnt oi dtductibh txpanrm.
mr potentld ir puticulrtly rppvmt
where intend tamed an fha borrowed
amount may be uied to compnrda (*
rovldr sddiEunr1 comprbalhn to) tbm
rot . ~ ~ C EorSp m p m
pmvidcd to tht lender. Exlmpltm of
these mitumdom Bcludc:
-. :
iq h
,,
t~ # m P ~ m n ~ p
organization in UIU of P.TI ~t .U of I
m e m b t n ~ p fee
(21 ban. lo Inrtlfutionr pmvl
m t n b lodging.nFd/ar m d l d
[B.E contjnuinp cam Ircilltiar) inlieu d

L~WY

aL

for

-

.

I*

[3]
colleges and secondmy'
~ h b o 1D
h lieu of p a or d of*
.2
ruitioa, room rnd h d IhHwould
c l h n m i n br c b q e rPd. - - ' .'(4) ~ O ~ tvPBO
WmmpI . w
- .'
hdrptndcnt conbrc~af y mn -by&
@dud.
in UWU01 pa rnl lor a me-

,

raa / h&;d

R ~ M

I m r bctrrrea r l a n k md • borrowdoem not execed 5 1 0 m ww7 t ~
d m not rppl Fudermon. h tbr t r w
of gift loans d l e r ( ~fi-u
&refly bthvetn artPnl
b

.

n

imputd intemt prymaat

h

b m w m to &a lcndar arch y.u
errllyt.Umltdtoth~obtb.
rmwu'm net irw.8-k
W 1defined rtctim 7
W
Y
;d
H
m
l f a &m .

t?

taxable ye-.
b addilioh ~ w I J W Z ~ I ~ ~
provider ngulrtoy rutborfiy h
axemptiq horn thr rppllcldw d
=don 7872 any dmr of k u w c d o n r it
the rppllu tloa drcction ?= wedd
.not have r aignifiuat mfleet a~ my,
F s d ~ r q ~ kl ixn b l v d th,kndrr rn tb.
h m w a Acmdl~&, p r o p o d
i 1 . 7p~
dd~
c r that ~crtalnWow
mmrltri Ioana which &mnnlI

or&om
t u rvoidrnu
tbr pmwid~nr
prrporn
ducttau
am
tare If, howl?ru.m3r r lrw I#
rtntcrurr?d u oar d rhr uempted loam
la 11. mvoldanu -mar
&. S.ruk
mag drrrarckm t
h mlurctlm
rxtolb m m k rubslad
app1~rccbl~a?WZ im aacclnkaqwlh
IU t t m k . h h r t b l e dt u p r y m u*
brild tc comment on whdhu o w . .

48
tatrnpttd
fucb

~l s~cct ltoi l w
dp
k r~r rt un p t d ~ .
l ~ud rmbBomu pl m

T

Wrtm*nt,und.r:Isctlw 7W2 d p r I v m ~
pl.c-entm
d son-ertlbir d o k

~ o ~ v c h ~ m ~ ~ ~ r ~ 1 a ~ m p . p b Sectibnro~(f)(~]proridnht
l~ale.c
bourinl,
lih inrwrnu wvemga, bedth
mU?n 7 0 2 dwr
apply tu ray levr .
becblon -,or l W l a p b * Fhr
~
-M
b ~ n y o i t h e u.t n- n- u. c, t i o ~ h -v l ':i . ' ~ wto which
~
~
~
~
~
~
&
2
not apply ad m f 1 o u t . b w w
,ign;ficmi pctcptid fpr dirtd.tm 7 ~ 7 doel
~
~ a00r lZ?4
n could ?ppb. a w n
Ibbilfb. ~ ~ e r kU lthe
l ~@i. ;- . 1.nn.d a n ulativrly la-,. Tb. Svrld &OU&
d e @ d a o~~ w ~ o
'PPIY b m d@*C@~lf?m
har decided however, mol lo propon:
q u l j l l o a . u c r d i y t a - ~ t i a ~ ma: . ;.
barbor p-ddonr
.d &ow..

A

hrvlngraie>;rlllcrntrRcdurrlilRw
mmrnenl ia n u i v d oa how ik f.sU
andcimmrtrnccrltrtrbou1dk:""~applied Iircludlq tbr p r o p rdr d llir

g

f.ctom cited by tbr Confrrena Re
hem
r her publicrtl0.n 91 thaw prop&-

n
h
tr S c d a intend# to hold

~ r t i o n ~ I I a p u b b t h a m r i g i ~P
.

w u ~ l a by
d In3 p m *b mubdlr
written c o m m c n t ~n r ~ l i u l w
-*
tax rgem lo wbdt wrlttm mmmmtr=
bnJtb bp=.lr on ail pdnt m t dm1

*

~

W

~ c f i o n ~ ~ ~ ~ d ~ t f o ~ ~ w d ~ r
a.1 debt i

n

~ f mm!!!~

~

~

'

b

P m P q d ~ @ ~ a b l aem&fdd*bt
m
ina-tnb
dcbcrlb*dla mu*
rz?3(b)(s m n d dtbl imtnrmmb
hda~mb].n~&
B d
rubled to u c t b a r 4&3 nod I n 4 md am
w~bl.EitOdmmz*fb#. bmmnu U*dc-hd

d

-

TBfZ(c1lfJ (4
P).

,

GrtaL 1
W d(C].
. bd o n d e l a t b d i.IKUOU 482 d
.n
h c r ; . I n ~ N o b ~ n # a c t i o a ~ b . h r C de o d ~ ( c o n ~ ~ n l ~ @ ~ f l ~ ~ d
~ d e th.
r rrpnlrllonn am Iewffanl
incorn* and d e d u c w -04 d t d . eRLa loan crrlirr-&an tha date tb.4.
tarpa~cn).Th=re'mmdr
lutun rrgulntlon~under ~
O
D
. I .:..
rot one lbit*d e * = f l o ~ t~
flJt

7~2(c)(l)a
[ ~n publidwd

tor=

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l o ~ w M c h ~ ~
d t d b d in I1.-2(
J(% on- indtbrcdnru uI#tqhl b m
mmw d budnt18out of &h lmrwr
or LCrsnd!?iwof arrvictm by w
btwm
mtmben of Im p .
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h p t d I.%PW md 1 . 7 ~ 7 2 4'..-.
pmdde for Qr excladon dar!rln
*low-rnmrk%l lobna horn Ibt mln of
* d o n 787Z anerrlly, U Br rmount d

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T(.month# a I
wu (thm
" o p n r~countmmcsptlm"). fht~
limited

mblmndlw

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F d d R-tr

~ p t l o wll)
n w h IGt
by wbicb
Ibr Smiu p k m LP bva
compbtd !ta nrisw d Ihr wnmsrci.l
D&

..

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uotph

-&a

50, Na 16l ( Tusdag,

Wlrl

+4 1-

w Crtrb'

-tl

ftwclima

~ d b k & ~ t & p r o p s r d
r*FJ~hpdb
rpdd mb h
vuiabh intrmt nh bmr,
vw-b
7-

.

mwec,wur

7m . bmrac~om*cb

oum in the h . r g

btbgu'iotmmuxomtm
aumtofburIntmrhmlnyIndur~

tr-rtioru
d-b.d
in sect lo^
l
% Svvlu hvttw
udttmm1#wtb4brucU'btn .pe ~ l o makp
belowrmark~it- baa b an employn io
ecrlrh dreumrtmna tbt l o r n b

o pDvhvl
o d r r F J . t lh
o al&
,dh,,n m p rLlu
bd.u(r

m y b chumotrkd u d r mdm

7WZ4c)(1)@)

J Proporcd

41 c o m p a n m ~ ~ o ~ - n f r l d

ioanr.(0atexlmp1rta~~metlo11tn ~
~
w
~
~
p
u
IOU
b wb*
h
nrbm w
h &.
: ~
~
~
pumumt to nguirtmrntr of an
nwd whim ~~w~~
lo r fuhrer urmml#rionrntrchmt w lo
t r t a l d f o r p u r p o u 8 d ~ t j ~ ~ tbec*&mgc.rrconditiarfor-dig.
UI
b ~ l o * n 0 U b ~ ~ ~ k ~
~ ~ t ~ t ~ i rw U
h dbdhtima Iu
demand baa u d m -era ?sn[Ws),Im S t k l
SH j a7.lor*to mnkm t
b d d r 8 m q u h d bf
ths u w when the tmploytr diapom d rpcial boporaq d e pd7wybl. It b necer8uy lo h
m
u
his,in:anst in tbr ban by w
mk to a third wmmcnts.) l ordtr lo dm~uminr
pow. pwrtim hav t b a r n q a r whether there bmaactimr
rubid
the
of
ant thm 11rbt pmpu tax Wammn! d th
to ICC tion 7 C 2 d,
rrbder t
h b-I
.' oubtmd3"1.
urnngementa ot mch wnraca;on hvw. mnm@nb oo lhfl IcmpIqa. employes a d W-rn
&am.
Tht M i c e 11 wmiderhu
rigrjncanl tflecl on thq Ftdri.1 tu
o& 1a
b h wd
ahrmrUvc wayl to -ha
h e bum
limbility of tb8 ltndcr w h w i t . tbr
tu R*
mvmh
~4kmict rqutstl tbat t u p r y e n rnbmtt
raised iu these cbcumtancs. -tiaimtent
with the following priadpkc
. writtern c-enb
pmwidiirq t
d
'"
rafl[l](lmprwldmr
rrqulalory muhti?yfor rrsurty tb.~
tbr
( I ) Tbt employ- Aould mmmln
. ~lpjmatimo f l b ~~~..
,ubbd lo wh
7wqfi~l1, brg
'Iht M a IS rbo r w u r h t b&w'
PrMnf &m lender
born- ma
t h l t l c c ~ o a w o u l d k m p p l i c r b k ~ ~ p l n o n l r u b j c F t l o w c d o a t m Z ~ ' ~ ~m b ~ * ~ e n t ~ ~ ~ t b
had
in\=mfif in
enter Into numerow 4 b d - t + ~&~m d .':- .- " ~ " ' p p l * ~ ~ ~ d ~ ~ ~
A-r dingly. ppnd 4 -1qo
loram for businereml,ttd or n t k
IDPII:
d
(z]TbE &rladnon
loan .houM'. p m * t n . 10h i)IhM$*,. +
Mdetb8th1tndU
Ib.
*A
,nr
,it.&.
,tam,,
. b n l n~dtiq
from $I
~xten*r
not p m m t opportunib'n br r u '
mvoWaa h a t would no4 viu had t b n l
-,.
cmploycr not blmputd d itr iptasfi
. .b
. .
nlrtiy to r r v d ~ w
d ( l o - j ' : " * * : ' ~ ImpHfd LMammkchh~ddmaloafw
tlw I0.p
BcFarucafrhr *duma
-d
&'"j?'=:"'
LP mmt b p ~ l b ~
d l l LtttfOll
d ~
. -.
W h t n pmmultated drc+i n3rl may 'r~4
' t r r m . r n ~& 1-•b
'is b mdditlw pmmcd I DJ-1
!."a
apply l o w t r i o I,w~*.
much u ~ W ! O ) . @ ' ~ j h l t i o n *&. %Aer ~ b *
. '
impiement. swtlm 7 m t o ( Z ) by
.
mlocation 10'
hmidc* &&ar
rpcdrt &, db-. pmhibitiq t h m dircaurrtiq, at o t b r than
axempbd fiPm tbr #t.tub und# :
eonvcajrnu catr k ionaulitrd h qym;'+ rbe 4pplicrhlrF.dud ntm, fw t r t r t e
~
~
t ~u 0 f a n y ~ l o r o ~ d . b ~
41 . 7 ~n
7.
~ evnul h n u i SAG.' drcumru- P du
+
invites mmmeafr amdnl
kuk
c4mp&.oer without mmflnt ,_.- . - .
r dtct a t wJtb donmtho Irittnt
.
F,;p-q-:
. . - . ~ ~ o p p o ~ ~ ~ e ~ ~ ~ r n ~ ~ p u ~Imrl~~Ro~adtPJlM
a t i o a , r c h mvoidrnu. The S d w krdtCr
Imphmwta d m 7 W q 4 p m v i h g
T b t p t o p w d rgul8Uoa~*rllt thrt
m t n b and
atimm wi* q fiuib8 rrnolurl h d t m d tht ltnduto!hrbDlrowlrmd :
fmpvp-m o f a ~ ~ l l i n l l b .
:
o u i b hinxwbicb
d
H
4 tbmj rorJd' auaariul
Iln i.,webth
market lorn d t a lo fopn#,-t.d
. tothmad
c - tp m
i a r ¶ o t e i g n ~ ~ . 8 d d ~ . ~ bl rdr p
- pliubla.dqu
tb&thst
fik*pmvflionr,~nflyb8~-4~1[d~
2 i8 m m d d w p . Z ~ i dh~ t lbr b-8
* n r m lafiprnpriak far h a t aimncy .
mar b. wnlu). fl a & - . "
&-lr .
,'dintrmtoabmabrhr~m
,hall bc wed in Ucu of the . p p l i o b l m
~dop*
. .. .
. . :,: &#qualinedp m o md
~ 4 privrtr
Federal r a t r . h w e v e r . hpmpord
.
.. ,-.;
r ~ u l r t i o n rtxprewl~kavm
t&
-Pdd
.
t d r t i w b wmputrd k ? h t tepd . ,
ppoKd &&-&
i.b~ to r a w 7WZ fm p
upomoI
Uder
qetnliaa o I how t
h impmlod tnd~
fmm *I bomrrm to thr Lndet Ir b b. '' m p p k b h Ftdaml m b in t
8e at uy rppllaha d bm a t u - l m p d by
h e drpndr upon Lbi F r d t d ! t . t u t e ' tbmt rctlPk
treated for t* purpou* T b Suvim h
M*'
a w l r r rhrr &b mmiaal ta!a d mtmrcmt rrrtr matrblirbsd !or md.iLn~t
wM&

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in& to & p d u
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*

33560

Federal Rqirtur f Va11. a,No. 181

1 Tutaday.

August Zd, .W

1 Ropoud Rdea

1

r a
tbr piimu nu d
m m a l a l e n ~ b t i h l l m @ for otba mrorrr b e m t d m
11 tbe time u c b p v f k m
.l i t
armp-8tirn-rrlrtrd lala hr p m n r
n t c ir not IU d t r which hy itr l r m u r ~ n r l of lcction 7872(c)(3] only IImom i
h ZS
be lctm than h e b r a t of bY at.tumr~~
parant of the amaunt loand b
Federal #hen-trmrate of thr r h r r
~ ~ b u t n btol rtba p e r f o m d
Ftdtral ~ b ~ - u rrmtr
m .7hunlm.tbr lora
mrvicss.Huptrtent w k dth.
wIU k tested for a d - t nuid Inkrut ta
amount loaatd Ir a t M h t . b k to c
b
r e d umi.murl perid ~ d t t
rb nrlrr d
pdormance of qtrvleh* rhbra t a&pr: m p p b (b)(3) of rht
lubjact to meetdon TmZ by r r m d
Continpent h t e ~ a p-4
L
kiq eompenrmtion-nkbd lora Tha
# l.tlt24 Typs d klo-d
lorn may. however. be subJret to wcnion
7072 by reraon o i be@
a Mow-mum[PI In gcnrml. Scctlou 7W2 rppUem
loan cburcttriztd otbar thm rr r
only lo urldn u t q d e a of k l o w market Isar. There utrpoder rra @fl wmpcrrrr tian-slated lora to.&.
corporation-rbuthaldcr loan or tax
loma tompen+rtioa-mlrttd
.
avoidance Iamb IIoorporstion-rharchold~1-m tax
(i] A loan ir c b u r c l r d u I
avoidan- loana md ctrtmia othrt lour
ciesrifid In thr x q d r t i o n l undw
' c u m p ~ ation-dr trd" lolo udar thim
rtctim 7U72 a * dgnMwnt.tu rffrd
parornph (cl.
loam (hlorns whore inteent . '*
(ii]
tcrr OLln I W gemen?d I)H
orrangcmantr hrvr m,dgnific.nttffcct
amount loaned b rttributable to t)n
on u y Fedtral taxliability of &e bdar p u l w m a n a of nmcer md
or the bnnwer.)
[fii)
The podon of the m o u n t loanrd
M Gift I m # + , ) b # e n d Th
&a! Ir not riMbutrblr h tlu
farm ugiftIom" mtinr w hhwpatiorman# o l wrvicta fa not mbject io
market loan In wblch tho o
w of
rsction 7a7z then tha amountl ol
interrml b iu the nmtur* of r 'ftutthla
imputed h n ~ f e (IDr dtllnhd In L7W2the srmniq el Chapter O f k e .i
i t r ) ( 2 B and imputsd banrfet (4r defined
h t e m d Rcvrnua Coda [wbtthcr or wt
in 4 1.7872-I(.)) am d t l d only.
nmb'.:
-*'
Ihe lender ir a n a t d
mrptct to that padof thlora
fm with
(21
n rnnu
I
which t rttribuubk io
M of
r p d J ruler dm tha mppfierS6 d
the factw d &urnatancam rurroundlng
r c t l m 7B72 to*
lwlu h r r n p h
e m m t and I r r*latlomhtp
fg] of thrr ~ t c l i o nfor d a s wl nrped
between I lender and ?haborrow*
ta below-mukat ?amnwhich ur
am taken into account in deiemloiaf
indirectly ert loam
.: .
the nion of th Imn mrda in
? H I ) exZmptf~ &L
In #enern A wmptmrtkp.r+latd bm:
(3) 7%LZd-pdylend- or WnL A
ir a blow-market l ~ p ? h aL
t -dl la
below-market Iola by ra mwalattd
connrctlon4
t
h &a *dm-.
Ihird-puty lendu to ra mmployu L.
d m .dinctly or Indineyr; .""
h r i t &~mttribuhblelo tl#
behvce+
pdonnmcl of setdm if. 1hie
[fl An am l c y ~ md
r m empluyrrg
rcEarPt mU tba Rctr ~ n drmmrr.nech
d
~ o ~ ~ I . ~ I J z t) ~. A
~ m . ~ b (ti] An lnitptndmfi whda and
rh* trwsctiom L In rubstma r ban by
&caODlrwBnprya I e w d . m m d ~ s 3 u penon for wbbm rucb bdrp'dmt:
tha emplcyu kids with the rid of r
cdtr i~ htrrrri to b. paid w m l r m d y oo
contmctor pmn'der ~ a f c r r or
.
ItnCu ~ciinp8s an qpl nf
k p t r m b t r 50 md Moirb 3l d r o c h y r u r l m
(iqA plrtatnhlp md r pl*u if tb. thlrd-pay
Ihr rmploya. b o n g tbe fa& md
raw qua! to tbr rkrmau Fcdmm! dm-trm loan ir mrdr hconrIdmUam fw
r g t t %&redon mmimnnual oaaporradinl) 1~
a r indlc.fr whether
rervlccr prrlormtd by th.putziet r c U j ~ m ~ t a a which
hr sonab k! which rhe p r p a a t Ir mad& Thr
much r Ioro bar bren mado b wbetba
olher
&an
k
Mo
cmpdty
~r
a
m
a
m
b
n
loan ham n;ll;citat r ~ m l d
Mrrrrl
.
.&a emplogar bern tb. risk of deb& mt
tb4 MI ~ P Iu
I h
QftiUpk e m p l r (,;l
a d immtdirtely .It- tho time tbe lorD
Thr Imputed hnrfar (&mountof money b mad.. Tbr prinelpl~of thim
birmplr If]rn:c# Ibrl lhm nctm d a la
inramt at I t a u mqcd lo tkr l e w r dtb.
h a l e d a8 trmrfcmd] by tbe 1md.r to
paragraph (cH9) d ~ ap
o ly withmrpeet
a l l a ~ ~ r F~dr-ml
tc
~horl-1w Ib.
the borrowat is compe~rtloo.F a
k
h
~
~
bu
b
a rn ~ a 1 . d
atrac,q rrdard M - l t m rrt. (hm d
purporea of thir rrcUoa thr tmm "6a
tbitd-prrtJ ltodu to am ind.pc&t
UH.b a l d a uuiwnum: mpundflngl f a
cortnsctiond t b h a pdod
wntracta,
the monlb b which the pa.-.mt fr ma&. i& rcrvicta" h r r b m ram. meanin# u t
b
loan brr d ~ d b n stmtd
t
(4) Specid rula j
b mnLCnuiw m m
term ha# for p
v of ChEfCW
A
Evcnpk fib AnhH W h ~ tU
l b
~aciIitim,Any l6.a t~ m oontlnd
IOU
hd'a
q~rliFird
prnnion
pm211.
& a n p h (2) t~aerpltL.1 btrreai 11 m p u t r d
facility rfU noi k treated
rbdng. w rloclr h n n r plan to 8
and ccmpmde-d rl rh. rnd of each mmtb at
o, im pul w Icompenublun-nlmid bra
pnrtidpmt of tha plan ir not
Inu equal o Ou Iawa n l h d(.m~tm
(51 Cn?m-rr/smw. FOPI I
h d c d Iborl-1- n l o d thr rtmll
hdimtb,r w m p c n ~ i t r c a ~ r d r tb
d
b t h m t . of~I hlaw-rnubi
f d a d Ad-lamrrtr [A r r d uw
(21 b a n in
in rxchan k
forpa d d k ehrmetarltbd u bib r
oa mmrhly e
o
m
p
o
u
n
d
w h mRKt 1~ t h t
rem'csr. Ib-pi u prod det r
mmth. A m d hl8-d h plymbk
mmpcnwtimnlnlsd lorn rrrd I
para ~ph(dHz]ofhh=d0n(d8-

h r v i ~uiFicienfrtrttd
interest if, by the term8 of the IOU
agccmcnt, the iaterert rate crnnai b
leal than the bwer of the F e d d
mtstutoy than-term mta ar tbr dttmatr
Federal hod-tern rate in eflect at Ibr
binning [or.il tbe ~ t m e q ro
t
providtl, at the end) ofthe pabmcnl or
coxpunding period (whichcvrr ir
shorter).
pi] ,4pp!icd!e F'cdcmf mte for
v a h b l e kte.rsr rote term !eons. For
pur;rcses of de!ermining tie rppllcabh
Fadzral t a l e , K a term lean nqdrar
payment# or cumround@ of interest
b a d cn r variable rate (wihin thm
rtlcarJw cf prrspapb ItK1Jof thC
rution]. h e itnn of the 10~1shall k
-r!sd rr bein# equal n h a longest
period of time that c x i r t ~between tbt
dates that under the lorn rgretmenf
the interest rate charged on the loan Ir
required to be rewmputcd [whether w
not tht ncoa?utatih madtr In r ntr
Merent h r n tbe immtdia&ly
preceding ntr). T h u , Tot exampla, la
the case of a 10 y t u t ~ m
loan that
charge# h t r r r s t at r vsrirblr ratn t q u d
to r rate 2 point# hbwe t h w prime m*
mad h a t m$ui.rrs that thr intend rrtm
tt adjualrd every 18 rno~Lhlto m n e d
any riran8cs iu rho prime mta t&
rpp!icsblr Federrl rrta t dt!m&d
trr~!tngthe loan H b a v i n ~ term p i l l
ntnrhr nthtr baa i term of 10 ylur
Accordingly. the mpplicable F e d 4
ahort.term rmtc rmL!er than the - - :
rpplicrble Federal Iowttrm
rbd
~FF~Y.
[J: The pmvision of p q a p b (eX1)
rb.
o! 5.h b e t i o n UUY ba ilfus-tcd
following t%ampler:
.
treated aa

,

[n

-

-

3
*

6

Qt.

I!?

cay tion-&loud

1%

a

k"

,

*

&

rbyzn

L

W ! m h ~ U d y Spiembrt 20 md M d
)oln ha8 d d a a t r t o t d
of rash y w ,
Lntrnrf
&tm (+). h
m
m tho ~ ~ kc^
r m
a i 1D
t a m p l a (1) tampi tbrt L n t e r t ~ tir pry~blaat

'

cE

'

to.~mf,i,m.-r.tlo.(..n.
rmptoytt who h ria r rbuabaldm d
tb. carporrtlan), a lorn which h rmd*
par1 in rxchang* for d c e 8 m d b

#rrprmtlon-lhmholk -1

ma

p m p r p b (6)tZ) 01this d a n . Ssm
p r n p p b [s] of tbln ~ t a i o nfor rule8
wllb nlpect to brlow-mhet lorn8

redenl Renter

Voj. 50. No. 1 0

/ Tuerday. A w a t a,iw 1 Rop0a.d Rule#
d.

-

89581.

vhieh ate indirtctly compenra tian.
cxamplc, 10 8 malrm a gift w to pay
thr ma, ~r two h i o w - m u t l t 10- r*fil
elated loanr.
cornpenration) b irrrltvlnt in
br rr~tnrctumdrr oar klow*m&
(dl ~orpomtion-rhomholdcrde
loansdetermining whether 8 ptindpal p~rpote IOUh m the father t~ fb.
1)IngenemI.Ah~ow-marlret1oani~r ofthtinterer!anrngcrncnuoftheI~
i 1.nW bwnptM w
:orporation-mhmbalder loan if the loan i~ tht rvoldance of Ftdtrd tu
I made directly ot Indirectly bclwew r
18 Ccnain below-morklt lmns with
Im] In gene*¶)
C;neml nrh.
;orporrtion and my ihamboIder.of tba
rignificunt effectOR tax &ability
Exapt pmddrd p-ph
(r#fl
:~rpor~tfon.
n a mount of monty
("cignificant-efect"l m s ~ e ~ a r v e d of
~ thir
. redon. n o W t h r t m a q .
rteled 81 tranrfamd by the lender to
(81 Ifidimct I m - 4 1 )in gancd. If r
other provlrfan d =lion
4 .
he borrower ir r 4rtribution of money
below-market Ioan i~
mrdt between two mgulationr thenunda, r s c t l ~
characicfized accordha to hrction 3M . person# rnd, bared OD rU the facta md
doer not apply to the lornr b r t d
rr in fie caae of an S corporation,
circumstmccr, the efftcl of the 1o.n L
paragraph @] of thim atctfon
h
~ection1388)if the corporation i a the
to makt r
or a capital contribution
Intereat mmngtmentl do mt haw
ender. or r contribution to capiial if the
or a di~tn'butlonof money fundat
rignificant c f f t c i on the Fuderd tax
hareh holder ir tha Icndtr.
mectlon 3M or in the cane of m S
liability oi the b m w m r or the lander.
(21 Specid rule. A below-market
corporation, rection I=), or to pay
(21 No exemption for h uvoidmu
omcompcnaetion to r &idperrun
I m r . lf 8 taxp~yctrmcturaa a
[i)
From ~ubliclyheld corporation to ("indirccl participant? or ia othtrwlae
b l n ~ a e t i o ato be lo- d e l d k d
rn empIoyet of the corporation who ir
attributable 10 the mlruonahip O[ th8 p v a ~ l p b(b]of thim r+ctloa and one
~ I JaO
shareholder owning h d l y or
lender or borrower to the lnW
tbmp~dpalp~rpomsrof.~mtnr~
ndirtctly more than 0.5 prxent of &t
puticipant the ban I#rqstucwed 88
b.nwenon
&a avoidma
c h a r e l of ltock
two or more DUCWUS~VEtj'~low-muk8t
: p t d voting power oi
Fcdorl t
u tbrn &* & m . c w d b
!ntitled ID vole ot mom h*n 0.5 pemnt
foanr w e e m t d losru"] for purporer ob
rrcher.dtrizd t u bvoldlmn
sf the total VIJUI
of ~ h a r t aof 111 other. . rtctjon 7mr an followl:
r 6 defined in rbcdon ?W2(c)(1)@&
:lesser of r t pJ or 0.5 trctnt of thm
[I] A deemed bclow-marktt Iorn madm
(bl
oja*rmphnC.
by the named lender to the L n M
: o i a l ' v ~ Iof
~ eaharea o nU elasat8 of
participant; and
flock(including voting stock) of tha
provided
tha followiiy
hpuupmph
tranrrctloxu
(I) of
u*
thh
cxrrnpl
Ham
[ill A dtemtd btlow-mrrket lorn
xrparadon; or
' born saction 7made by the I n d h c l part2cipant to thr(ii)F m m a corpormtio! that in not r .
b
,
,
, w ~ c h mada rvauhbh
bor~owtt.Sectiun7BfZ b applied
?ublicly held corpormtio~to m
by Iba lenda lo 1 1~cnsrdpubk on
gmployer ofthe urrpomtion who t drd meparrtely to crch dwmed lorn, H.
&,
tm
.nd EooatlomdI mharcholder owhiry dimcdy or
em& deemed loan tr b a t e d ID brvIiy
coarb,ant wl*
a, I-*
,the some provi~ioruar tbr o %'-I&matorniidinctly mo- than S parccnt of tht
b o e a s pnbetween the ttndet and r b m bo w i Y . ~'" - (2) Aeeounta OP Wltbbmwable lhuea .
iota] voting power of all clarrtr of r t d
I b u r for t i a m
1 fither .aka ma- ~a
mtit1.d lo YQU or mom than 5 rsent .
lu hhrd
i.,dm lllL
>f rht coral number of rharea o r U 0 t h ~ . i n t t r t r l - h e 10.- to Ida dn&tmfm':,
or an i n r t h t l o m to which &on
swi
:!musea of rroek or 5 percent of t b m f o l d ! wrpomtion Lhe our b njtnrcturrd n><,p lrch at
tb.
don
value of rhanr of r P clsraer 01 #d .
btlow-mmtket lolo born Imthrr to
o 4 n . n savu ofit. bus-.
dlughta fdtemtd giR loraJ U I ~
r'
[including voting ntock] of tbt
131 Acqulritlonr of publid7 b d d
mtcond below-mubet loah h m :; *,h,
prpontion: will be presumed to b.4
oblm~on, lolamoult
qwl
torporation-shrrcholdrrloan in h
' daughter t~ corporation (deemd
public t n b pder at tb tlmr d
corponlfon-shurholdrIOU). SlnOdy, thr
acgdlitior
mbsence of clear mnd convincing
cvidenee that the lorn ia made whly in
U r o o w a t l a n maker m fntamrt-W '+'
f4) b a n 8 made bra h f m Iamnaw
ponnection with the perfoman- of
- baa to finother m m o n l y conbaUd compmy
L. *.c~m
mHaI).
corporatioa.
Le
loin
im
rewhshmd
a
i
l
1
'
D C M C E ~ . Tor purples o i dtterminiq
ordin.
b.lhnr l.
h e pprcentage of direct nnd hdhd '
below-market 1o.s h m thm Iehd*
hund
d&t
corporation to &t ~ ~ m m ap ran a t
I~OCL: ownership. the conrtnrcuvr,
p w n r r ~ h i p r u l c s o l * c c t i o n 9 7 [ c ] ~19.
p
c o r p o r a t i o n ~ n d r ~ ~ o n d b e l o w - r nin'lil.hrum~~u~mdtnw
I db m. crmh aunandei vrluar m d u ,
(3) Cmss+rqFcrence.Stt parmgrmp Lg]
ban from rhr prnnt corporrllonto tlir
wllmttrd for &a I o l n r
DI
this section for mltn with r c s p d to ., bornwiry wrporrtion.
below-mrrkctlo~~which.nin&raetIy
( 2 ) ~ ~ i o l r v l ~ f 0 f i n : ~ m t d [~S0) kr ' in~8 r~u~b r ~ d i 2 t d ~ f h r F . d ~
corporat i o n - ~ h ~ r ~ h o lI-ri&
dtr
lender and bomww u ~ a
' ": State [fndudinl
DilMd d
CO1~bi.h 01 M 4 d p . l P * = M t (m
{el Tax avoidonce I m # . A UX
pcnoa. ruck a, m h&vldua[ mt'm
~ u c ~ i d a ntaan
c t ir any klow-m.tkd
prfin=nfijp, or ~ r p o r r u o a
rr d
U Y '8enCY M j n r M t n t a U th-0loan onE of ihc principal purposes I=
intcrmedivy ot middrmaa In r 1'
"d which
mv8i1rb
am ollcnmral apphcath to th.
~
;'
the interest rnangtmentr 01which b th* tranraction and 4 purpoar for D U C W
p%
mvclidanct 01 Federal tmr with rc~ptctto In to mvoid tbr mpplicrtlon of
Pu(8)a
Empl8yct.ml~tlonlolnr that
either the brrowtt or thr Irnder, w
~ 8 7 Z ( ~ ) ((A].
i ) IB). or LC), tb.
me*!
the n q u h m e n b 0f p u w r f i both. For purpose1 of hi#r u k t u
bftrmrdiry4 b.@d
rvoidaneriarprincipdpurpo~*dth.
Iomnwillb~rfrdrrmrdedlrtcdf
bl(l)dtMlm*m
tfl oblig~trmsthe
a
bttwr en rhm lender and rhm borm-i'
intcrtlt rman emtnb fi A principml
Id
.
,. . IJ a d u d d
nu,,for uxnrnpla, u .f\fi*r
frctor in ibt &riaion to stnxture th.
auction 1rnrnpr lhcir btlow-mar at IOU ttan~actionrg below-market loan
[I]
O b b ~ l l o dorthe Udtrd 8htn
tr~nrrctiomby having the f h r r mah a
(rather than far ~ x r m p l r 1s
. r market
inlttrli rate loan and 8 payment by h a
btlow-marlet loan to the Iathet'r
govtmmmnt
~d
(9) Lomm to I cbuttrblt
dfabmn
lender 10 the bomwrtr) ir to d u r n the
rrtntrrhip. l o l ~ o w db a r - 4
( d r n d b d h m d a lrnl~]zI If
&lor-muLet lorn [wi aubmt.aUdy
Federal 1 8 liability
~
01 tha b o m w r r ar
11 no tlme d w the t u r b h y r u
Identical ttnnr and condftionn rr thm .
h e lender or both. The purpore for tbu rggcgrte wtmtandfng mme* of
first lorn) mrdr by (br pmrtnenhip to
entering into tht tranrnction [for
'

'

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4

P"

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d

r

r

-

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-

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F-1

33582

R W m

I

Vd W

Ioanr by the lender to dl much
organization4 exceed Slam
(101 Laam made to or fmm r tort@
pemon that meet tbr nquirementr d
paragraph (c)(Z] olthh recdon: .
(11) Inanl made by p-nmte
foundation or otbcr organfutlom
desuibtd io d o n lmtl. tb* p
m
purpurr ofwhich Is to accornpU8b o m
or mort of the purpuaa dcam'bcd in
lection 1~c)(21@I31:

brnm made prior to Jdy t 1Be extent excepted h r n tho,
application of section ~2 fathr b
month [or l o n ~ t r perid
]
r e f e d to h
(12)

to

11.4&!-f(r#3k
(131 for pen&

prior to l d y t 1a11 m o n e y - w d t i e r . u.d pmpam
received by a f u h a w d u i o a
rncnhant or by r clearing oganiutiw
(11 to marsin rrantpc ot M M
contrmctr for lure deIivmy w or '
rubjeet 10 the rule* of r q n a M d boud
or exchangt (ra dtfmed Ia
'12SBlg](7)L or (31 to purcha-.
guarantet or stcum opHanr contract#
traded on or aubjcd to rh. d m d
qualified board or exchnge. and rll
money rcvuing lo account h d d o n a i
tbr mmult of rucb fum~d ~ p t i o z ~

-

R:

coniraetr:
{Id] h r whtrr the t u p y w uo
rhaw that the below m d a t DM

:

arrangements have no ai@fiClol d ? d
on any Federal tax liabiliw o f h It&
or the borrowu, ma de&hd ia
paragraph [c)[3) of thifi m h rad
~
[lS]Lorna, d e d b c d io mvcnw
,
d i n g or revenue p m d u n r fmd
under ~ t i m
7 W a ] ( l ) ( C IiC th.
C~mmiasionarmdr hat h
jurtifying an taemptioo for surh b m ~
r r r nuficicntly rimilar to Lbr lncfon'
juaiifying tht txemptionr contained 6

..

-

- -

-

to an cmployet. Gbcrt rucb 1rtcwed by 4 morlgagt on the

L

principal temidcnu (wi~biatbm rnrof mtction a 7 and tbr w l d o n r
thereunder] ot the empIoyn. r c u h d fn
conneciion with &e -fmr
of &t ,
trnployee to r new prindprl p l r b of
work (which merts the rrquinmtntr h
acction Zlf(cJsnd Lbr
'

there under^ the lo-

;dubnobr

rv

'

from mccdon 7872 if rbc foUo*
condition* am rrtirff d
[A] Tbe loan la r demand loma or hr
tcim lorn the bentit4 of tht httrmt
aman rmtnb of whicb rH not
irans.t-bI. by the omplo)-ce rnd *n
conditioned on tbr htw
ol~uba!antlalwrvlcrr by tbr tmployn:
(B]The employee &fir# to thr
employer that tlr ernplope rrammbb
exprctr ro be rntitkd to mnd will iredm

P

NO. lai I

M d s y , August

a 19g5 1 Ropowd R

d e d u c k for e d zcu tbr 1Ir
outrturdhg lad
ICJih loaa r g m m m t d m tbrt

th.1-pmd
b.d
a
t
e
purchart thr n m mcipll midena of
thfi employn.
(ii) En'@ 1h &a mw d r
tlo~-rrlatcd 10411to an
I, not d e s d b d h
p a n ph (c)(l)[l] of thi8 r d m d
r
&
used to purchau a m
principd siden nu (wlthtp tbr melnisf
of redon at and tb8 mgdrdam
tbenun&r) d & e employee rcquk+dla
mmectloa with tbr truuier of that
tmpluyet lo new prtndpd p h a of
work (which meets thr mqulrmenta h
wctioa n 7 f c ] md the
thereunder), the loso **Om h w m p t
horn wctioa m
2 1J t q e . f i U o w ..
eondidom an r a t i a d d
(A) Tbo eondttopl w n W In

Z;&~N&

bmmr b a t h d s r m rpplabh
k m r tax h a w .
MFmpurpomdthh-tb
t m W a r r i @ p c n ~ " ~ ~ p m m
Lbrt Ir not a U3.
(31 Loan* nmthout

- .

p . f i w ~ ~ hIcJO1Ijl(AL PL 4(Q d
thir wctioa:
(B] Thr ban a p e m e n t p r o v l b t h t
the lorn L pmyrbtr in hrll wiihin 15 dry
after tbr d r t . of tbr sde of t
h .. .:-

employmo'n immedrtaly femur
principal msMeocw
rt. p r h i p l -&t
d
'C'
dl OUtstAndlng
orm d d M In thk.
wf
p a r r p p b (c)(lWB) lo la employ- ir ~ro
ptatar than thr arnployu!m -bL
tshatm of tb6 mount dtha q d t y d
the .tmp!cyaw and tbc employta'm #pour*
h thr amptoysl'r knmdatrly I
principal mid . . - -::

-

ID) Tbr cmpIoyca'r irpmsdi.tely
former ?rind d msidener la & convened to L l n e u or hvtatxn.nt
(2) &low-mork~tIwnr in&'
fomiw mom+) kstlo.
not ipprio
~ a r . m u t m loan
t
(otim

m

i

r compnssdon-datrd loln rn 8;;
mrporntio~sburbol&?t o l n w b m tb.
b o m w s b 8 mhnholdar that Ir nut C
~~rpormtlon
mm &findi rrctloo
trm[.nr)] U tha lmdsr ir a 1w.m
panon m d tb8 b o r m w ~
!S
UA''
pdnoa, unltsa tha btartml inaim
h p u t d to Lho fmfgnlendsr [ w l h t
urd to thh p u l p p h ) r o d k
3 a c t l n 1 y w m e c t d riL ~ h .
of 4 U.S bad. or buslntsm wlthh Lb.
mr.nItq of d o n W { e ) a d tb.
regulations hraurder md wt exempt
born U.S. heow taxruoa unda rat- - +
rpplfcabh tncomm tmx
(IIJ -on
7 ~r h
2 d not
blow-market loan w b t t r botb
lmdtr and the bormwa m fottJrs
perrow d e n s t h m interrrt Wrn
imputed 10 tha lender (witbout
t M r p u r p r p b ] wodd k d d w
.
comtcfedrrlththmmdudafrU.
h d a or buninenr within the mtrnhq of
mtfonW ( c ) rnd the rrlrJ8donr
thereunder and not exempt h m U.S.
&la

t

b

h

~ W b a t h e r r h d l b ~ i d t n d . t ba, 4 lorn th.bbmd
urangementr of wUcb bm a
ri@uat~badonuyFsdnrltu-,
liability of ?haImdm a tho bowUlkdrtsrmInsdrcarrdfnltodmf
thr faeta r a d mAmong tbt
facian to k wnaidemd
(1) Wbrcbuitemr dfucomr nad
deduction generated by h a lam off~at

uch o

h

-

-

[ii] fhr amount of rueb it(iii]Ih cost totha t 8 q a y u d
com?#lq rllh iha prohiom d &
7 a a mch
rwn 4pplis4 4 4
(h)An# n a - h n~. W M f~
to I ~ E ~ tb4
V *bumCtjon u m k
lmulut 10.8 mrbw &am r loan rrlth.

htcm8t I t

~

t E tq d to Or FA-

h

tbr a p p h u b t A d d rat. rPd r
prymeat by tba 1end.r-lo thm born*
f 1.71724 l h h q md unovlr d
hoonnwlmwMOmwnd,-

(81 h &ed
QbCtlm7gTp(8f d t
h
provtrio- of tht mdoa govmm th
md tbr amount d tbr Impaid
truu u by tbr l-&r to tha k w a
d tba h u tJ intarert payment b tb.

-Y

d

bo~~~bLb.bdUhtb.U88
•

blow-markmt damlad lo- %dm
? m a ] md thir arctroa a h povrm t
b
4
d BI mount-of th.Lmpotrd
w by tbr lendrr to thm b w m
md rbr imputed (atarest pymenl by dm
b m w a r to the Ianda born iaoom tax
purport8 im tha m u of tsrm &ihh n a
(!%a r*ctlon 787ZlbL 787~(d)lZ1,lad
1 l.fWZ-7 tot ruler
md t h m mwnt of
imputed mudb !be I t d m to tbm bwrmww In thm m u
oltrm
fo,
t
u p-1
*titart[d](r]an 4 1-.
ltmlt
Ihe &mountd tbr tmputtd Iatemst
. p e n t with mrpea to cutah #t
Po!h( 1-Zq"l
rw d" ror
dirthguimbiq d e m d loma Irom t a m
ban&Sn 1.7w2-1m for 8 p s d . l d w
govanrIn#huiirrpryrbfiiafot.ia ,
currency. whlcb apply notwlthjtradiql
m y eontruy d r r mt to& ia thh.

3

Ph-'

gn

uctim

Bl r

h d-lbganrrPLA

firrpt aa othtnviar provldd i
p u 4 v 9 h (bJ(31, (4L *ad fS1
h o a !he t o q o n a lnterrrt (u&M
In meuon tsn(e)(z) md p . r r p p h [el mf
Ihia reaion) rttrihtrbh to pcdodm
d d n m y calenduyeut I n a k d u
1 by tb. h n d u to tbm
tnnj.ened
borrower (and mtranrftmdby tb*

~ederalRs@m

V d . 50, ?do. 101

m w t r to h e lender] on Dccembcr 31
that calendar year and shall bt

''unpl*' On

K I . in!tnat.lm
~

t u e ~ d a y .August

LOBS / Reposed b

#).

[ Z ) Any intenit payable an the lora
properly aIlocablt to that yeat.
The amount of foregone interest b
cumputcd for c a d day'during IJI~ period
for which ntction 7812(s) mpplics to the
luan end iw tremted am trsnniemd and
retranrftmd on the data specified in
pnragrrph (b]of thi8 ~ection.

atEd for
PurPo3e8 in a muvlw
n~iatentwith the trxpaysr'~nlethod of
counting.
:21fiample. Pmrawpph (b)(l] ~ f t h i l
:tion may bm illuatrabd by tbt

lowing cxsmpk.

/

'''-

t r a d e r md tbe yield to mrturIty ir ha
appIicabla Ftdsrrl rat*
f i ~ m p l s The
.
pr~vi*io&#
d abia
p a m p p h I11(3) may k iuuhtad by

w)

tba foBowiq -ample.

-

( (.?an-7

-

h u m p h . (I) On fur 1 0 . 1 t~
ia a d t Q m
Iharrholdu, tor fiva ytum fa eachtor SS.mnola harirg Inmt m Waybun.Lb.
rh
111 pmymcntl Ihai B mwt mrkm to L ir Sutxm
Thil lola i m r ~ o r p o r m t i m r h ~ r t ht.m
o~

ws,m to B,,

*.(

m k ( l* M M ~.(
wmrctlon
bhr-.l

dtmand lorn to F. mn

ploytr of E Thr loan mmrinm outs!mnding
the entin I= txlcr.dar year. E h r r ~
mble year endina Scplernbar Jff P is
the imputed
cndmt year trxpnyer. For
nprnraiion payment and the imputd
am11 payment ( r r mmputrd undtr
'4n.ph
ofthi#
anma'd
d* on k e r n b a r 31.

s3!s03

k.m
(a) IE -1.
Thin laction i v e m
loan mdu m t i o n 7872(c#lHC). Aocordingly.
the Federal income tar corutgurnua of thm mount of !ha hpuiod ~mnrimb I. to 8
1' d t t t m . d undw b a prai~iorvJ
t
l
o
n
h l ~ ~ - m a r l i term
e t loan& 0 t h ~
mz(b1.
tern 10~31
01 term 101- waled ra
(iO Oa junrS.m
10.10s(. L Ir trartd
IS
demand loan, under tha provisitma of
hnrLdry
Yl,mO
8 1-78'2-1o(~)l5l~to which
7&72
I.moml band)o m ~ 2 - ipMnl
~ F I J It
~ ?Iw
~ S .8oVerm tha ftdard %ft . d all plymmb]], .cmrdrner d&
3) Gifi/mnz berwpu! n o d
sons. In the case'of gift Ioam directly tax conrrqutnctu of below-marketgilt
? w q b ~ ~ & t himpukd
i,
trandw 18 -,tad
- term loanr S e i 1J872-fl(r) for ~pmcid: a contribution to B'r upit.1 by L h mmount
tween natural pcnons within the
eqwl to tbr imputed traasieru treated u
,rning of l , f & 7 ~ 4 ( a ] ( 2 r) a. y b.puttd rulem whidagovun Josnr~rtpayrbltla
oridad inrw dirtovnt This original tmua
fortian currency and whicb apply .
nJtt and any imputed intamat
d i ~ . c u n is
t
additfen to the S m (=,notwithstanding any contray d e a rat
p e n t to which this section rpplltr
hntrtad rtdtmptjm pinIcsm W~.CW, d
m
forb in lhia aactioa
ring the bomwsr'm taxable year IS
('1 r h i ~ a n d m o r r n r o f ~ f ~ t .blur
O & epdw)
~ H dofm
or-ml
t n m iInsum
n e ddicewnt
undmlnme~~l~h
rltd tor h t b the lender and h a
rower. rr occurring on the Isat day of fmm Iender to bornwar. In thr u r r of .
,,dt h, ,I
I, ,,,d
&* a
lerm loaria to whirh lhio ltction .ppliea.
"borrower's t u x ~ b year.
~t
of l,rm of or4~nd
t,lu, &
t
41 Drorh. ljqujdotion Or terminorion ' . tht bmount of th8 imputed buufu by
.
(4) Amount lwnsd. Tb8 tarm "mount
the Itndw to rhu borrow.e+
b m w t r . If the bormwar dies [ia tha
at
loaned" means the amount mceirnd by
. (i] I,
trr.td ttanafmd
le of r b o m r r e t who im r nrtw.1 .
won] or i m lig~idrtcdO? o t h t r * ~
. the 1-o
jl
i. b.4
tu
fb' bornwet Idettmhtd without 'WZJ. h e fi 1387s
purptlmea in r rn-cr
conairhat dl..
m i n a t d (in tht a r e of* bommt
ler than Insturd penonl. -9
:
~ e t a * p . y u ' ~ m c & ~ o f ~ ~, u' 2n 1t ~~1. 1 3 I f ~ L h r t n ~ ~ ~ n t o f t h e ~ ~ f a r
... of Ibm ban proc*adr to the b m a r in
md
puled emafet and any imputtd ....
'" Inrtrllments or uubJhCt to draw-down
{ill 11 equal lo the rllCtl8 oftnmt paymefit arising d d q the
.
(A) ~ hamaunt
r
leaned (rr defined in m'M*ona
mwcr'm final taxable y t u um
rted. lor both the lender and thr
pwapaph [a)(4] of. thir =don); w.t: ..& (51 h a r n l wlue. The Pmlent vmlua of
m w e t rm occurring on the hd day of
(a! 13r present v r ~ ~ m ~ ~ ? , d e t c r m h m &'1a f " ~ m ~ n ~ am W d m d to
borrower's b.1 taxable yeatp~ragreph(aJ(S]of thfa i e ctioa md
m'd' under
~ro~iaiona
01
lola
'"t"t
i b compted r'a of the date
. 1 1.7~:-14) of mU paymantJ wmch .n
S) Repoymmt of loon. Xf r baiswfamade (of-if Iatlr. 81 of h'
r c q u f ~ dlo be m a d l under the t a m d
~ k e loan
t
ir repaid, m y im~uttd
n ~ f e and
t
any imputed httn8l
&c 1o.n
=meat, whetfur rxpar. .day
loin f h t om^^ subject to th.
pmvidonm of rtcnon fm?).T h m d r ~ o ~ n t
implied.
p e n t arising during the b m w c t ' 8
. ~ b ~ e y e u n ~ h i c b i n d u d ~ t h a d ~ t [r ~~f C ~ ; t ~ ~ ~ - ~ . I n h u n ~ o l ~ g i i L - ~ ' ~ f o ~ ~ ~ ~
aymrnti,trrrird.f~b~ththeIandrt, t e n n l ~ ~ t h ~ d ~ o f p m r q m p b j r**rppuubbFederalratgamdtfinedb
~i)--~~
- :. . 1 1-?872-3fi1 i
n tfltct on tbm day
j t)le borrower, ra o c m oa tbr . -at th:r aectlon rppb for g l i t - t u
gmw h... which loan fa mod* For dn
the Imn i a nprid
on?y.F~~
8ovemfqthe computmtfoR
dprramt
el Amount of ~ronafet.h the U# d t income tmx come qucncl8 of dh talplw
. .. mlur. let 4 1.70::-14.
Scr r!wEl*om?b
ow-market 1o.n to which ntction 78?Z loanr, H+ 1l.787M:
($)h l1.787Z-S(b)(S).
rlita and which b r demtnd -1
(3) Treatment of mount rgud to
. (a) Barin. In Lh* ua*of r Irrm lorn
biputrd banmftr rr orifid imw:luding r term loan that ir b a t e d r a
tbr Iendtr'o banim In the aota r r u i v d La
tmrnd lorn 40 provided b
d
tI
neml. k r y bdow*
.78?2-10(.)(5]] or a g1fl turn 10.a tbr
market loaa to w ch p a r q a g h [ r ] [ l ]d m*chnq*
l e n f i l money q u d to
~ r t g e n ymlum
i
of P8~m-h
tbb rution rp #cr rhdl br mrt*d u
igonc intercat (as wmpuitd dm
rra re ,uircd to be madm under the term8
nu=
d[.cowt in .a.
bmviry ari
prcrvi~ionaof fi 1.7mZ-14dL
of tha orn agreamtnt, wbatba uprrsa
amount equal to tbm amount of h a
p t d to the loan m
i t n r t d rr
w I m p l i d with rdiumtmtntr u
imputed bunafar datermined unda
nnftmad by I e lcndrt to thr
provided for - d o n 1272(d#PE
row- m d mtranrfemd as hhnrt
p r r r p a b [a){l of thim wctioa. Thi8
b)~ p c / . l d IW
. ~h. a
h
impuieBorilin.l iamua dtcount i s im
the bornwar to thr hndu.
.pmvi#ion8+1) h pn#ml. Il u r
r ddition 10 m y olbw orighaf fmru* r
nrtrHy. for m y ultndu y c u tbr
m " l o n p o n ~ k t a n r t n ~. ~ ~" h d i ~ c o u n t o n t h r l ~ ( d m t r & d . .
of thr appbu tion d the dr minr'mlr
wi~houtr t p r d to wction 7U74h)m thjl,, foviojonl of wmction 787ae](2) ar (91. r
zrm oi$fin b e m a mubiwi 1.a ~ t i m
IWI d
proprph]. For--man
of applyhl
dintarad that would
I) The
thia rution on r day ahmr thr dry on
-ton 1272 to • loan d e c v i b d in thir
rw been paymblr in thrt yew U
which tbc loan ir mad.. rbt rovidonr
prfaprph thr Imnw prlu #hall k
rmrt hrd rcftued rt &a r p p l h b b
berted 48 e ud !a th. rtrted princid;: of &a nlctioa 8ener.U~ WPp Y lo the
lordrrtr [ma d e h r m h d in &,11WZ-*
1-n u if thr lorn w e n mrda on that
ndbmd by t amount of the impuld
: OYW

-

+'
,

,,

,,

,

,

'

'

'

'f

,

"

...

,

%:

*rm

1

*

,

i

I

.. .I

33564

Federal Regjsisr

/ Vol.

W,

No, 161 1 Tuesdev,

Aumst 20, 1985 / -Reposed Ruler

employer to the cmployn. nnd a wwnd
{S] Eiffmpfes.The pmvirionr of this
loan from Ihe employee to h i 8 child. The paragraph (b] may k illurtmted by the
dccmed gift loan between tbc employee following exmmplar.
and ~ h employee's
r
child ir w o t t d an
fiomple (1J (I)Eu d J m n q i.1th.
dimetly betwren natural pemnr.
tottl r g p g r t e ouwandiq amount of
[b)Da minimir expfiorr--.(ll In
byhnntP,iohll&Cb-hd
.
gcnrml. Excrpl am othtrwi~tprovidd In thew Imnr i j a btlow-mrrLH bra :
1
paragraph IbI(3) of thim rtction or in
February 1 . 1 a P mnkra r W w,,
t 1.7872-7(r) (with rtrpect to the giit t r x mmrkwt demand Imn ta C Oa Mud &1-!
conmuencer of r girt ttnn loan lo
P m r L n 4 tZm klow-marlel & m o d lw
ro C On Hovemkr i.1mS C mpy8 &I-d
which the pmviaiom of section 7872
principal of the mrrhet-mu -1
lo P.rU d-have already k e n np lied), in the caw
h e ohm IMIUmmdn wtrlrndia r#d
of any gilt lorn dinct fy h t w t t n natural December
n.lps6.f i e blow-mmrkei Ioanm
prscms, the provision# of -tion 7872
m
n giB loam and I n t h or@ naw !war
do not mpply to any lorn outatanding an k t w e n P and C lw cllandor y e u 1any day oa which the rmrrgim
(iil For th.pcrioda Ian1. lPda
outntanding amount of loans bctwta
Ftbnu y Za Il a d Nou*mb.t 1.1h u g b k m h r n.r e a ~
the lender and bomwrr doe8 nol
7872 d m
not apply Io a
m l o r n h h v r t o P ud C
t m d fiam n
t dm minnimu ruled
k u u w r)n ouurandh loln b.l=
this paragraph (b)[ll ipplies with
htwemn P and C d m not e * d h w
respect to I gift loan evFn though that
to [he loans are dirr
dvrirq thw pcriodr F a tbn pridb g b i f s
loan could slro be chanclrrircd an8
(21 Continuing npp ~cuhanofsection
on M a d 1.1uid endlnt on O a o b Sl,
tax avoidrncc ban within tho meanily
7872 Once stetion 7872 and this section.
I=. hnwevnr. the r
rtr fluuilndbq
of =tion 787Z[c)(t)(D] and I 1.7872apply to iterm loan. they wnlinue to
amout of toan, - 7 t - n n
P d~
apply to the loan ngnrdlcsr of whether
riet.
cxcctda n0.m.AecordJndy, tba p t o n ' ~ i ~ m
121 &gwute ours&andingaonrmnt of
itle k nrinimL provirion# of reelion
of uctlon 787zlal apply IO IIW
S#10 lmn
Imn8.Thtaggrt 4teoulrradinp :
mnd S
L
mgift Imn d w i q th.1
, I B T Z ( C ) (21 or (31 apply a i rome Irlct
h u m p h (Sb (i]A a m I1Ie urn f m r 18
amount of lwnr twetn mnrt.1. .
dale. In the case o f 4 gift t e r m loan, thh
'
in Exrmplm (1) axecpt tbmt h SrOm gift 1wmonr ir tht sum of the pJpvrlrpraph applier onb lor gift tax
mbanMatchi.~mk~rrtum~lar
rmocln!r of outrtrndirq lornr dlmtly 2
purposes and d o r ~not spply for i m m e
pvloddBnjrruIbeFrdmldfttud
between
h
a
individual&
r
r
g
a
d
l
a
n
4
lux purpoecr.
inwau t
u -wnen
d th E3Pm dB
the chanrtu of the louu, mgarga88 of -dmmmd
hn~d.oaFmbnvryb¶~um
#1.78?24 SpKlJn)nfa3ftlonr
tbe intqmi rate charged on the 1-a&
thrrrav 16 h E u m p h (1L
d i r e * b e t w n n mhrd p
.
m
and regardltms of the date on whicb Ihe
[ii)With rtnprct b
am dft t.rm I M ~ .
[a 1 Specia) rules fotgifl lwnr dimtly
lorn# were made. For thb purporr. the
ltction 7 8 m # I ] applkr
oa Much
ber w e n natuml persona-41] In gcneml. principal amount of r loan which fa d w
1.1fw m m d w m p u l l i y iha rmeuni
Section 7072 ( c ) f i and
) [dl apply npm'al
mubject to ~ r c l i o n
1272 (without applykrl on the impu~diiRbyPtoCFarbm#rkd
t u l n to gill loans directly b c l w e t ~- ~
!he limitation at mectfod 1273[r)[3)]18 the kqinninlor! M k b i, 1- and 6am
jl. f W d&
72(aI appUn &
natural persona if the aggrcg*tC
"adjusttd iafue price' as Lhol tbnn h
o u l s ~ ~ n d i namounl
a
of loan8 ( U S
l)ltarmfikmmloufa~d
defined In section 1z72(m](1).Sm
d r l t m h i q tb.e m t md ht i m k dth.
determined in pargraph (b)@) of this/ 1,7872-7(a)[3)li) lor the d t t ~rminr
tion
imputad i n t W pymrat by C lo P. PM tbr
section) between tho= nntural pcmonr
ofth. i r r u prim
~
of. lorn whlch Ia r h o
two-mmth p c n d tqinalnl m Nommks 1.
doel not exceed specified lirnitatianr.
rubjttt t o aution I W Z
f
h
la,M i o n ? m a ) d m aot
(21 h n s dirccir').betwen nurum1
13) h n r plwibulobk b o c q u i r i t ! ' ~
em lola tar rrdnnl iacow i4a #perrons--{i) For purports of !hi8 * r i a
or-COnyinI of incoawp&hg
cssct~. h u w IRo u h t r n d bm
~ blmer
u l o i ~ nis made dimdly be*The de minimir eactptlm described b
k m a n P & n d C ~ m ~ m a m d f i ~
perronr only if both the lender and
paragmph fi)(~)
of th'lr uection dwr not durina thil plrid.
&a umr LcU u
borrower am natural ptrronm. Fot thi8
apply ro any gih tomn M
y
D a m p h ffL (11
ia Exmmplm (11waepl h t f
h
dft h n
purporc. r loan by a natural penon
~t~nibuiable the purthmrt or c a m
mrd~onF~brrryl,t~Ir~temk.nhra
lender to the aardian (or cuslrdimn in
ofincome-producin 6amtU, A gift loan
priddfiv~yarrrlhF&m~fltud
ihe case of a gift mrdc pwaurnt to tha
I8 dimtly rttributr Ir to thm p 4 r m
incow .1. w n r c g u c n a r a f ~ ~
Uniform Gih to Minon Act] of n r M l or clrryin of income-prduc
damudfl h n r n r d r ~ M a ~ Z l p
.n
B
for exmmp e. If the lorn procct
person is treated rr a loan d h d y
ldeariulto tlrou k b.mpk bj
between nmrurrl pemn* U. h o ~ ~ c t . dimlly mctable tc the pufdrrs8 of Ib.
IHP Q#r
(li)On F a h y t
Income-pduci r m 8 r t l , t h o r r u t i ~ nor appty to Br plDO lorn k u rbr~
parent lends money to a tnul ol w h l d
the child i8 !he mlr tinefiefry. rhr ban u r d *r cD11rt c 3 rw ~n lola or thmm
whimding loln bdnaw ktwm P .mdC
i s not treated r l dimdly b t * ~
dolr not t
~ SlPmO
d
Mudr l.lPII,
l o direct enden- &a! &I lorn umr
bowtvw, t
h r m 8 k mt8iadbtg amoplrtmr& to .wid dim ridon ol the rnsatr.
noturrl penom for purpose# of this
d lornr k t w n m P radC e n d *m
(4) l n r n r n e P 2 i w o r m a to,
aectioh
w F d m l #fl tra purpou* wctla
prvpoaea of U r prrrfropb fik h a r
m F
(iiJ
A gin loan which rcmullr h m
-)[I)
~pphl
amk.p mfnl"incomepdu*
am.(" mcrm (fl M
restmctudng r n hdimt lorn a# two w
an
Mmreh
1.1U
m
l
u
I I-k
rhr
a4-t of I type that gtnttrmr ordinrly
mom loans (ar d c d b r d in 8 1 . 7 8 s
vlsioned~nrtrpply~hh
inmmc
m,
(ii]
I
market
dfwouat
bond
4[#)) rnd in which omtunl pcnona r n
ad k n mndr on M a d 9.1h
~ r m u d k f o m J u l y f # . ~ ~ . ~ wy.r d i j l J n V r # g fw r p . 6 d rPtr lor
deemed in ba tht tender and he
mn i n c n v produein( mmmt i d d ~ * Y ! ~ t eomputiry &r prrrmi valw d plymntr d~
borrower ir tnattd an 4 lorn dirtcrly
ir not limited to, r buainelh r ctrtifian oa the lorn Pw tb.out-mmtb plrSod
between nrlural pcnunr. Thur, for
hqimlry om b r c b 1.1-lien Tlfqr)
example. if an employer maker r brlow- oidtpwit a raving8 aa;ount mtodr
rpplim lo dm
lorn f~
d
[wherhrr or not dividenh u* pIdE
market loan ta an employee'# child, Ot
drtmdning h a i m p u d latmr4 p p n k by
loan ir tc~tructurtdar onr lorn Imm the ban& rnd nntal p m p . q .
Iuler day. The applicable Federal rrie
applied to this loan (includin~for
purposes of cornputin# the prpsent value
of the toan). however. ir the applicable
Federal rate (88 defined in $ 1.7872-a@))
in effect on the day on which the loan ir
f i n t made. The prercnt V ~ W
computation described in pmragrrph
[e)(l)[i](B]ot this section i# made as d he day on which section 7872 and thim
section fimt apply 10 the loan. For
purporca ot making !his computation.
the tern of the loan is equal to the
period beginning on the d r y that section
78:2 first applier 10 the loan and ending
on the day on which the laan is !o be
repaid according to the loan agreement.
Any pryments payable according to the
loan agrrtment before the day oa whicb
scction 7672 and ~ h i rreclion fin1 apply

,,

+

yded-

plz

L

f

f

T::**

r

-

~ s d e r dR s g i r t r

Vol. 30, No. 161

C to P. For &a twm-tontb period b s g i u
on N o v e m h 1.1- nttion
d ~ c a0t
l
IPF~Y10 the Sfom
lorn for F*derd ln-mm
la* PWo*n bemu#@
d &. ~ ~ p l l u ~ o n
Lhe de minimi# pmvimimr
E*cmph(IJ On b m 10. IOBI. pinnt. t
~JIH
mn m0110himat-he @fi
hrir to
~ ' child
r
3.~ b b ttbr d y lorn mt#landiu#
krweea t md B durIn# 1Pbl.On lunm tl.
lm.0 icvmla tha #- tn corparaU rtoelr
T h c h~.aa)
dr minimir pmvfeian dm8 nut
apply to the lorn. b u ~ tha
e loan prxaad*
arc dimerly rt5butmbh to the p h s r d
wrpormtc mtock an iaccmt-pduein: amnet.

fwa~)

(4fimjhtion on ~ ~ q t vof?impu:~d
t
intenstpaymerrt-(1lIn
enrm!.hthe
case of R 1o.n between a orrower and
r !endtr both of whom &re nrturd

%

,

personr [kithin tha meaning of
~ a r r p a p h(r)(2) of thir wcuonJ. for
day^ during he borrower's taxable y e u
on which the searegate outrtandiq
-amount of loana (within the med
arapapb @)(2] of thir,rcelion)
e.h.een the bomwer and th= lr?de?. 11
SlOIXUoO or Itan. the mount of tbt

1 Tuesday, Augult 20,

1W

invtrbnenl iaccmc is not llf-ted
.
mong &e dry# cf the bomwerDr
tlxlb]c
yew.
r
h
t
r
,
for
turbl.
ytmt
~ f

brrowtrecdr dter
june

1481,and hduder m y day w day#
befortJune 7- 19H- b e t n h amout of

w h i h &c

1.1-

-

mtruon

.PPlilk
(a] A:/ocof:bn omorlg pifi Iwns. In tbo
case of, borrower who
mofi fhm -

one iftlomaoutr~rndingduringr
- t u a % lyear,
~ the bomrwr'a oat in~s~~meot
Income for that y e u Ir
m U m t e d rmon tho Lift lcmm in.
proporation to t rtaptctive mountr
which would k treated pr imputrd:
intrrrat prymrntr by thr barrow^ to
h a lendrr or ltndtn with n~plct
to
tbesa 108m wiihout regard to thir
paragraph (el. (See &le (21 of
paragraph (c][B] of thln le~tfok}NO
rmount uf the net tnverlmtnl income L

8

33585

c mpryr mm of*#

h m ~ &at
m c
a n.t
investment h w m r lu drlmrmiold under
pamuapb (e)Ifl of Lhir crctioo] f6r iw I
I
The iimitation unda m
o
~
7w2(d)(l)
oa rbm a m o w l or imputed
ppmt
d
l
(
t . t l 10-

,pplirrbdnniry
to
-,#ID

net invtllmtnt income for tb@tulbh
y t u I8 trkan into 8ccoual in
dettrminiq tho mrdmum lmprtd
intereat palmed for &r drys d-a

h*

Roportd Rnltr

lMru

A,

jhaq
lad
h e m o n t h period bt@miqcs Oetokr l,
1A - d h 3 y . thr imputd
pmptnt on the Sam loan fm
m y not
t x c ~ e dam..
finmple C2) E d q 18rtunl p w
borrowmr B
t h r Oln
~ 10mu:from @ different hider. k ~ Ionn
b 10
rIigibla for the an- year fortha apecia1
Ueitrtion on h e maom; of imputed internat
prmcntn undrr ~cction?Bft(d)(lJbut none
of !he lomna b tbnible forth. d l minidm
exception ofpaiytph (bJ of thin ~octfon.Er
nrt invram,ant incomr for IW ilst.000. mr

rnwpmtm imputrd intersst p r p e n u m tbru
loran#idttcrriunincd without resmrd to raction
7 8 i t ! d l ( l l ] w c d d be 1.mThr amount of
imputed inttnai atrributrbk to em& IOUI
rhrr nppliution of wtim 7 # 7 ~ d ) ( lha)

-

compuimd r r Irr.l]owr:
**Mm@-

of my loan under wetion 7 m
tlM).Mla
(21 fhx avoidance Ican. Parmpapb
(7) Amounu in~ludrdin n d
(c](I) of thu section dots not apply lo
jnvcrtment i ? c o ~ aFar
. purporu? d ; ,.
any loan which is a k
u avoidance 10u ~ t i o7&72
~ . ntt'investment incorm f ~ '
within the mcening of 1 1.7WZ-4IcE
4 taxobla y e u eqvllr th8 a m ofCcn~tqumtiy.MR h p w d intlr#!
(31 No 1:initation # inverlm~nth c o n ~
[i) 3.t inve~tmtati_acqmh r h m t
prjmrnt to landor 1 crmot t x u d d Z m k
ismuni~uloicd.Para 8 h[c)(t]ofhfD yavrrrdotedntdundir1#~d08
thr h p u t d lntrmrl p ~ r n mto
l Balm3
meclion does not app y r borrower a n 1831dj[3). txcludin# any item ofincomr'
,xurd P-: .ad*r
uantrd the timing of tbr recei t 01
or: r drftrrtd payment ohligatlon which ~ntarr,t pqmrnt to hndu s unrrol ucc*d
i n v c r t r n e n t i n c o m c m d r e t ~ ~ ~ y d o ~ ~f a t r c ~ t e d u n d e t r s c f l o a ~ 7 ~ d ) I l N ~ [ Utir
) ja
mlnjpulale the timing i0 acaletate 0~
and parm~aph( c ) ( f ] [ i iof
) h i 8 reboa 8s
defer tht r l u i t 01 i n ~ t ~ t m t inwm9.
nt
iatrre,t retdmd
g&w
yam .. 1t787z-1
mWmlD
o r c mfor~
Forexrmple,ithebo~o*vtrc~n.~~de n d i n g r f i ~ r j o n * 0 , 1 ~ : d " ' . ~ " ~ * m m r * 1 0 W M
mc ~ r p # - ~ b
a
h
a
n
h
o
l
d
a
r
m
rctumlly dm#.contra1 tha min8 of
[ii] The amount thmi ir t t t a t d undu
[I] In g m e d . In the uu d m y
dividrndr paid by r clameiy held
arction 7872(dJ[l][E)II1I) ro intmd*.*
demand loon dtluibed in r u ~ o n
cerporaiion. the limitation on the
received Tor thmt y e u on n d m i o d
.
terq~l(1)(B]or (CX l a ptovimiona of
sinount of t
k imputed iniem~tpa}.nant paymcni obiigrtiem.
daes not apply.
~cterred
wp,", dljmim.
w t i o n 7872 do 801
lo W
on
which !he ~ g g r q a t outrtrndi
r
rmwnt
[ I ] Net in verment i w m m of S 1 . m
1.n~"drf[md pay mtni oblig~tim"
ler, d i ~ ~ p ~ l dU
e p.np.pb
d.
(c)llJd
m..na
m.rL.1
band i a m u d , of loan4 b*tw*@n 1md.r mJth@
b m w e r doea not exceed $10,000. In I m
thia ~scricinapplier rnd hf h*bomawet'r h f o m ]ut la IW. w an -obihaticam8 01
t t m ~four d t r d h d in
net inVamlincntincoma 1. determined
fiat. if be d to maturity,
under paraaraph Icll71 of
~ction)
pndietrblr md rrdu flow of
, ,. #tctiom 787t(cH1)(B) m (C) [telaEr* to
the d8 minimi# dl).
thr provi8ionr d
for r taxable yeat LI S1.mo t k l 1)~
1.
0 d n . q inam* which. w d u
mfCfi0n7872 apply t0 tbl IOUIS Of L b l
borrower's net invertment h m l f
a
rppliubIr t r s der.
is mt -gAiudd
f n l day
~ h r year
t
ir deemed lo br t t r for
~
~
~ pfidAmdin&,,
b
~
~ on which
~ ha I W
~ C~ ~
~
(
outstrndinfi moml 0 f l o a betw~
pllrpnmer of thir paragraph (4.
dakrred pry merit oMigalianr i n c l u b
(S! No prumlrbn of net invratmurl
bui am not limihd how obliaa tithe ltndw 4nd
b
o fi*m&
~
~
~
incorn.. Tha t n l h a m o U l of thm
. lirlcd in w d o a ?~Z[d)(l)(E)(iv& . #10,0#I. a t 8 m*ttion 7872 appial to r
trrm lo-. maction 78iZ wntinues ta
h r r o w u ' r net invemtmrnl income lor rn
(a! E , ~ n-#
~ pro:.iliom
~ : of
~ thh
1~xa13lt
year (81 drimminrd undu
p r r l l r v p h ( ~ ] m ~ y b ~ i I l u m ~ r a ~ ~ d b y (fhi . ~. ~ ! ~ t o ~ * l o a n ~ l ~ r ~ l e s a o f w h t ~ ~
the 510.000 limitation i p p l i u rt w m
.
~a'agraph [e)[7] of thb ~ ~ l i o t18l )
tollowing txampler.
i n t ~a ~ u n int dettrminin# the
fiom9lr (1). Un J8numw1.
plnnt P
lrta btr.
(b)~ ~ p f W o ' e 0 u t h n d i namount
f
of
rnnsimurn impu!td interc~lpaymant f~
~
l
o
r
m
,
r
~
lifi
lma
to
c
,kt,
a
1-n~. The UPclrtm ouifitandi~
hose dmyc durina !he year on which the p,
u r a thr tr1mJ.r year rr t b .
amount of loam bctwrrn the lender and
net invrrtmtnl incsme lirnitauon
~ ~ ~ r nyarr.
t l r On ~ r r r t.
h IW. P m k e r m
!he borror*.t?i 8 t b sum of lhe primjp.1
mddiliwialS75.0o0 rnarkrt-tat: h a 4 0 C On
appliro, Accordingly. drt amount o! nt!
'-

?ir

P

P

.

.r

.

.

,

,

'

.I:

~ s d c r dR&tar

33566

1 Vat

SO,

NO. 16l / ntsday, h

-

emounu o l o u t l t r n d q !cam dirrctly
bttwttn tht p u t i t s , qardlt8m O! the
c k u r c t u of &a Iomr. r t g u d r a r of the

intereat ntt Awed on tbe lorna, md
r r p a d r w of t b w dale on which tbt
Icana were msd+.fot l b i r p u r p o ~ the
,
principal u p o u t of I I m n wkio'ch ia &a
j u b j d ld r s c t l o a l m (without applying
the limitation of =tiom
1273[4][3]) f m b e
" I d i u ~ t t dfarue ~n'ca"rr that term ia
defined in rution 1272[8](4]. !he
il.;s72-?(a)[3)Ii] for tbt dttenrrbatio~
ofthe inaue price of r loan whicb b dro
subject to ~ectioni 8 f Z
(c) Tru avoidmcc I w n . Wr drcrion
dots not apply to any loan whi& im m
tax avoidlnct lorn within thr m r a w
of 8 I . 7 S : U el.
(dl E r m p e. Tbc pmdsiorii of this
mxtion mmy bc illureartd by rht
following example:
E~urnpla.{I)OD lanuan 1.1L~ d t
9.m~ O W . ~ C Ur a m lorn 10 A r mrp-tion
i n whitb t ir m ah~nhaMrt; Oclobrt I4
IL mad= r #.aD five-year t a m loan to

I

8. Baih loans ur intertat-lrtt ~ n are
d
pryable on
day af the lcrn ttrm.
ncn
no
ouraiandin~1o.n k i w e m
L and 8. Nriihct l c ~ nib I 141 ~ v o i d ~ n 1
c0
t .a

~ 2P, 1985
~ 1t Propobcd Ruln

-

W e m t n t wk2c-h pmv;&8 that D l o m a
E SIB.mfm Fa lift+ bs hmtrd u
term loan h a u r t he WE txpectancy of
E may be determined ~ c t u l r i l l y .
(31 R e l e m ~ o n
and rxLcm~on

,

cf~uses.Acctleration d r u m lad
m i d l ~ rprovilionr that would s&t
loaa due befon the time oth~lwire
~peciRedIncluduq provi8iom permittin#
prrprymenl of a loan or m-lrram tbc

maturity date on flaponition d
mllbierd Im'duton l a ! $ ' d a u r e ~@re
l

diareaardtd for Plrrporer of I C C ~ ~f 872
O ~
n u l aa loan for
of 1s
ir r
rerm loan for 1s g e m t v t n d it 11
aubject to accelerutinn upon ~ o m t
action d !)itS o t r o ~ - c tU
. Lht 1o.n
agreement lptciRr~an a*cefiainable
period of time during which the l0.n 18
to b vubianding but contain8 an
~xtenrionc l a u ~ tor mimilar pro+%jon
&rt would make Lbr lean due rhm dm
hmt o t h r m s e apcinrd the loan h rn
t e r n joan d m tht nwudainrbl.
' 4 and lernnd dem4rbd
r m n thertaftrr. the cla~mifica~ion
of i h m
laan
rm
trm
or
demand
d
epaL
U C G ~ ~
upan fie
of Lbe t x t e n ~ i o nd 4 - m
(4) b a n k lor o plriodof limr not

u ~ t t k lor, forglvca by the l e n d ~ .
mrb wuvrr, clacl&tlo&ar f ~ m v m c ~ ~
Is b a t e d u &a Intlmrtbd fad
b t n paid to the Imder rod thrn
f l h n r f e m d by Ibe lerrdsr to tbr
brrower but only 6
(1) The l a ~ n i ~ dwl yd d h r ~ . k a n
ruhtrt to mction 78?2 bad R bsm made
without I J , I ~ ~ $
(21 T ~ wwjvmt,
S
unafl.tjoa

.

[a) A plincipd purpose

hawduar,

f o M v t n t n a dntm nol hdudt in
l u b r i u t i d p~ the loan p*dp*l;rad

,

1,
confer
k n t 6 t on tbe k m w e r . such as to pay eomgcnsrtioa or maka r gift. r
cspitsl con~bution.Idia~botignof
money uncr rrcuon m,or l h d u
payment la &a borrower.
The retranarentd mount h
~dnctllrtjon.or fo@vener

4

dl,BL,Ll*ld
IOT

t,

wl*
the rub

nanpWsill

*+

pmpa,e
d t ~ n b t dLn pmrsg4pb (ilWi]
d this
atctiea I.pms-~d
&a
Of 10IN

bBnr,FtiDR

bE,rrEn

mrolbM

SOlpmnuans

,d ,,,knheldm.
oyen .d
tmploytem, or m independent
( i i ] ~ ~ ~ h ~ ~ c n ' o d ~ i n n i ~ o na~ccrioinobla.[Rrrtrvcd]
j ~ ~ u ~ r 1 .
wnlractor m d a pltron for whom uuch
indtpendcnt contrctol pmvldr, ,
{5) Certain loam cdndilicnd on
I= and tndina on O c t o L ~1C IDW. h a
w h - 8 unlttl thr luprgar ua h o w
pmvisienr of uc tion 7872 do LO1 ~ P F ~ Ytb. btur* ,#miFor &H p w W d
n.mlorn W u u Lhr outllandiry IOU
-tiPn 7872
*la
d c t t q th,
c ~ n v i e c i qtvidtaa hl
h I r n c r brtwnn L md B d m no! uca+d
rppliuble r d c t d
(,H, fi l.tm2Q
m
h t r n r t obligaMon w r wdved.
~
$IO.R*L h Octokt 1%IS* howtvrs. t
b
u*uUed. or forgiven for I ltgltimrte
Ibc
rggmgate amount I o s n ~btturrn L and 1
3(bf2
irLbthnefi"
bur inrml pwpow d thr ltndtr who i~
PTrWemtnta
or a I t r m JoanIra
~ * c & B ~10.030.A-rdingly.
the pmviriom
o , C K t j w ~ z [ b ~ , f l ~ y ~ O ~ ~ ~~r nbnlr f~e m
~ b l ~ b y t h c i n & v i d u ~ l b o m * . ~'rc ' ~ i n ~ t ~ ~ a d ~ r 8 ' c r r d r t o r
atthing to rnaxirnh utlrkdoa of 8
and a n condironcd on the h t u ~
/ r.7mZ+d lor tht pmpcr re-1
Irx
c"~"
in f h r u w
ptrlmrnsnm cI avbltmd.1 ~ c r v i m
by
h a t m r n i 0 Ihr impv~edm n r l i r by L ur 8.

/

the individurl b m w e t [within thr
meaning of l c c t i ~ na).
Ihr l o r n b
agrrrrnentm Lhc applicab8 Ttdenl ntm !W
ha tLb
demandloam
,,,d
[kt 9.mlorn it he rppIiublt T d e d
circm,tlnecr
mu,l
rxldnd
,a
for
Iomnb
with
in tf!ta oh j a n u u y I.
d c termine whethe, fit fvturr w r n i ~ nIn
1 e r n o f 4 r t . n l @ v m n ~ o d ~ thpr.lomed
~ ~ ~ ~ ~ a m , u b,tmntirl.
y e a n n w i n k r o n rha lorn end#)-Undw
(6)Revolving d i Iwna
~ For
1 1.:87z-7[b). tht prtstnt vrluo d rhm
purport, of ~ r c t i o ai87Z m c x t t m i o n of
pa~rnrntto bt mad* undir tht 9.m/ma
credit by n l r o n of thr urc of I d
1
sgrcrmcni 11 drtrrmind ra ol OEreber 1%
1986 (the dalr on which lcCtlDn ;a71 Rt.1
wrd thrt i n mvai!sb!o to borad
#ppfd<# ta chc 9.mlorn]
I 1~ r4b
argmcal o~ hc
malad
ltrm which begin#
1s. 3demand loahBnd fie pmvid~md
rndm en jmnuaq 1.1~cctianfB?f
may a p 1y if&# 1-io
drmulbrd Ln one of
ottgorin
I 1 . 7 m - 1 0 ~ u wdr*f~rl)lin!l.i87U.Tb8ptriodd~rifq
which the loan ir out~t*ndingbqim on
(a 1 'Term" and 'gemnnd" I m s
thr h t d r y oa which r finr n u cba*
di8fingtrirj5d.
Far purp~sc,at r*crioo
r m l d be r
d ifpa-1
dt
h
7872ouwading balrnw in not made. Fw
(11 Kkmond Iwd Any Iarn which 1s
rulca governing h cnrnpulrli~ad
payable in full 41 mny lime on Ihr
lomgonr intenct for demand l~
with
dcmrnd of the lender [or within 8
vakable brlrnur. 8 0 4 1 1.TU-lytb
rea~nrblrtlmr rRer the lenddm
fi)p t s e ~ , d for Whet dcfitjtimm r a
dcmrndk b 4 "dcmrnd lor&"
(2) Term IA lorn Is treated ar a
ncddj
.
For p u r p t r 01 rompuhpn-nlvdw
of 111 pamentn la bc mrdt under tht 1-ti

,

h

"rrm lorqmU the

loan nfltmtnt

rpscifitr an rwrrrinrble prricd of lime
during which the lorn is to ba
ou~rrsndiw,rm p u r p o ~ aof t)lb m/e. I
pttid of lime ir trrmtcd 81 bti
a ~ t r l n i n b b l ift the pnod may
dclennintd r c r v l ~ ~ l l y .lorn
~~~.

%

-

4 l-nmll
wd
1m] Waiver. cnnclflabon or
f o g r v c n e ~ofinlerertpUymcn~.
~
Urn
lorn i, rnrdt muiring the paymen1 of
~ r * ! t dlnitrrrt hnd h e accrued but
unpaid intcrtrl i4 lubltqutntly waided.

hrrowmr'r inmolvanq.
[b)D i ~ p o ~ i tof
i ointentat
~
or
~ b & ~ l i Qii"
PestmedJ
{el Hurhnd-md hifa irraird a0 1
PCm0". S C ~
ja72(0(7)
~OD
p d d a r tbrt

8

bunband ~ n wife
d rhaU h trtmted r r 1
pnon
bulband
A c c o wk
y ,mmblned
rU 10ma ID
with
ot h
@Um
]o~"' loOr from the w i f @ f o r ~ ~ oof* e b
rppbjq wctjvn 7872 All lorn# bchvttn
a huband and 8 wile
dirmg~rdcd
fox p " p O b t l of ltcuon 7672.
(dl Wilnholdi~.
h Ole cnu of any
d t m ~ d aubjtd
)
to uctlon
7anoamounllfit*~uIrrdt~k
rvithhcld under chrpht 24,m1.w to
hr csll*ction of inccrme tax 81 thm

wagen and back-up
wlthholdirq. wi!h reapad to any @mount
t r t r t d 14 brnrlemd or n h n r f e r n d
under ~ c c t i 7o 8~n 11) (bb,
WlthhrrMq b r e p u b 4 w h
rppprimle, bowavgr. for
chrplarn,rrlrthqtotbr
l n r v r m C6bWbu+onr Ad, a d
chrpttt 22, rclrting to the R r i h d
MWU on

R t l h m t n i Tax A'L on m y amount of

money

b m n a f t d md

retrrnatrmd b c t w m tbr ltndtr and
&mwr b e a u - d the mpptication of
raction7872-