26 USC 1274A - Special rules for certain transactions where stated principal amount does not exceed $2,800,000

U.S Code last checked for updates: Oct 17, 2024

§ 1274A.

Special rules for certain transactions where stated principal amount does not exceed $2,800,000

(a)

Lower discount rate

(b)

Qualified debt instrument defined

(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

(B)

Exception where lender transfers debt instrument to accrual method taxpayer

(4)

Fair market value rule in potentially abusive situations

(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.

(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.)

cite as: 26 USC 1274A