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USC Title 26 enacted through 2008

§ 1274. Determination of issue price in the case of certain debt instruments issued for property

 
(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)(iii)),[FN 1] and
 
See References in Text note below.
 
(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 to which section applies
 
(1)
In general
 
Except as otherwise provided in this subsection, this section shall apply to any debt instrument given in consideration for the sale or exchange of property if -
 
(A)
the stated redemption price at maturity for such debt instrument exceeds -
 
(i)
where there is adequate stated interest, the stated principal amount, or
 
(ii)
in any other case, the imputed principal amount of such debt instrument determined under subsection (b), and
 
(B)
some or all of the payments due under such debt instrument are due more than 6 months after the date of such sale or exchange.
 
(2)
Adequate stated interest
 
For purposes of this section, there is adequate stated interest with respect to any debt instrument if the stated principal amount for such debt instrument is less than or equal to the imputed principal amount of such debt instrument determined under subsection (b).
 
(3)
Exceptions
 
This section shall not apply to -
 
(A)
Sales for $1,000,000 or less of farms by individuals or small businesses
 
(i)
In general
 
Any debt instrument arising from the sale or exchange of a farm (within the meaning of section 6420(c)(2)) -
 
(I)
by an individual, estate, or testamentary trust,
 
(II)
by a corporation which as of the date of the sale or exchange is a small business corporation (as defined in section 1244(c)(3)), or
 
(III)
by a partnership which as of the date of the sale or exchange meets requirements similar to those of section 1244(c)(3).
 
(ii)
$1,000,000 limitation
 
Clause (i) shall apply only if it can be determined at the time of the sale or exchange that the sales price cannot exceed $1,000,000. For purposes of the preceding sentence, all sales and exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange.
 
(B)
Sales of principal residences
 
Any debt instrument arising from the sale or exchange by an individual of his principal residence (within the meaning of section 121).
 
(C)
Sales involving total payments of $250,000 or less
 
(i)
In general
 
Any debt instrument arising from the sale or exchange of property if the sum of the following amounts does not exceed $250,000:
 
(I)
the aggregate amount of the payments due under such debt instrument and all other debt instruments received as consideration for the sale or exchange, and
 
(II)
the aggregate amount of any other consideration to be received for the sale or exchange.
 
(ii)
Consideration other than debt instrument taken into account at fair market value
 
For purposes of clause (i), any consideration (other than a debt instrument) shall be taken into account at its fair market value.
 
(iii)
Aggregation of transactions
 
For purposes of this subparagraph, all sales and exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange.
 
(D)
Debt instruments which are publicly traded or issued for publicly traded property
 
Any debt instrument to which section 1273(b)(3) applies.
 
(E)
Certain sales of patents
 
In the case of any transfer described in section 1235(a) (relating to sale or exchange of patents), any amount contingent on the productivity, use, or disposition of the property transferred.
 
(F)
Sales or exchanges to which section 483(e) applies
 
Any debt instrument to the extent section 483(e) (relating to certain land transfers between related persons) applies to such instrument.
 
(4)
Exception for assumptions
 
If any person -
 
(A)
in connection with the sale or exchange of property, assumes any debt instrument, or
 
(B)
acquires any property subject to any debt instrument,
 
in determining whether this section or section 483 applies to such debt instrument, such assumption (or such acquisition) shall not be taken into account unless the terms and conditions of such debt instrument are modified (or the nature of the transaction is changed) in connection with the assumption (or acquisition).
 
(d)
Determination of applicable Federal rate
 
For purposes of this section -
 
(1)
Applicable Federal rate
 
(A)
In general
In the case of adebt instrumentwith a term of:The applicable Federalrate is:
Not over 3 yearsThe Federal short-term rate.
lOver 3 years but not over 9 yearsThe Federal mid-term rate.
Over 9 yearsThe Federal long-term rate.
 
(B)
Determination of rates
 
During each calendar month, the Secretary shall determine the Federal short-term rate, mid-term rate, and long-term rate which shall apply during the following calendar month.
 
(C)
Federal rate for any calendar month
 
For purposes of this paragraph -
 
(i)
Federal short-term rate
 
The Federal short-term rate shall be the rate determined by the Secretary based on the average market yield (during any 1-month period selected by the Secretary and ending in the calendar month in which the determination is made) on outstanding marketable obligations of the United States with remaining periods to maturity of 3 years or less.
 
(ii)
Federal mid-term and long-term rates
 
The Federal mid-term and long-term rate shall be determined in accordance with the principles of clause (i).
 
(D)
Lower rate permitted in certain cases
 
The Secretary may by regulations permit a rate to be used with respect to any debt instrument which is lower than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such lower rate is based on the same principles as the applicable Federal rate and is appropriate for the term of such instrument.
 
(2)
Lowest 3-month rate applicable to any sale or exchange
 
(A)
In general
 
In the case of any sale or exchange, the applicable Federal rate shall be the lowest 3-month rate.
 
(B)
Lowest 3-month rate
 
For purposes of subparagraph (A), the term "lowest 3-month rate" means the lowest of the applicable Federal rates in effect for any month in the 3-calendar-month period ending with the 1st calendar month in which there is a binding contract in writing for such sale or exchange.
 
(3)
Term of debt instrument
 
In determining the term of a debt instrument for purposes of this subsection, under regulations prescribed by the Secretary, there shall be taken into account options to renew or extend.
 
(e)
110 Percent rate where sale-leaseback involved
 
(1)
In general
 
In the case of any debt instrument to which this subsection applies, the discount rate used under subsection (b)(2)(B) or section 483(b) shall be 110 percent of the applicable Federal rate, compounded semiannually.
 
(2)
Lower discount rates shall not apply
 
Section 1274A shall not apply to any debt instrument to which this subsection applies.
 
(3)
Debt instruments to which this subsection applies
 
This subsection shall apply to any debt instrument given in consideration for the sale or exchange of any property if, pursuant to a plan, the transferor or any related person leases a portion of such property after such sale or exchange.








Tax Code (Internal Revenue Code) Section Index


U.S. GAAP by Codification Topic
 
105 GAAP Hierarchy
105 GAAP History

205 Presentation of Financial Statements
205-20 Discontinued Operations
210 Balance Sheet
210-20 Offsetting
220 Comprehensive Income
225 Income Statement
225-20 Extraordinary and Unusual Items
230 Statement of Cash Flows
250 Accounting Changes and Error Corrections
260 Earnings per Share
270 Interim Reporting

310 Impairment of a Loan
320 Investment Securities
320 Other-Than-Temporary Impairments, FSP FAS 115-2
320-10-05 Overview of Investments in Other Entities
320-10-35 Reclassification of Investments in Securities
323-10 Equity Method Investments
323-30 Investments in Partnerships and Joint Ventures
325-20 Cost Method Investments
330 Inventory

340-20 Capitalized Advertising Costs
350-20 Goodwill
350-30 Intangibles Other than Goodwill
350-40 Internal-Use Software
350-50 Website Development Costs
360 Property, Plant and Equipment
360-20 Real Estate Sales

410 Asset Retirement and Environmental Obligations
420 Exit or Disposal Cost Obligations
450 Contingencies
450-20 Loss Contingencies
450-30 Gain Contingencies
480 Redeemable Financial Instruments

505-20 Stock Dividends, Stock Splits
505-30 Treasury Stock

605 SEC Staff Accounting Bulletin, Topic 13
605-25 Revenue Recognition - Multiple Element Arrangements

715-30 Defined Benefit Plans - Pension
718 Share-Based Payment
730 Research and Development
730-20 Research and Development Arrangements

805 Business Combinations
810 Consolidation
810 Noncontrolling Interests
810 Consolidation of Variable Interest Entities, SFAS 167

815 Derivatives and Hedging Overview

820 Fair Value Measurements
820 Fair value when the markets are not active, FSP FAS 157-4
825 Fair Value Option

830 Foreign Currency Matters
830-20 Foreign Currency Transactions
830-30 Translation of Financial Statements
835 Interest
835-20 Capitalization of Interest
835-30 Imputation of Interest

840 Leases
840-20 Operating Leases
840-30 Capital Leases
840-40 Sale-Leaseback Transactions
845 Nonmonetary Transactions

855 Subsequent Events
860-20 Sale of Financial Assets, SFAS 166
860-50 Servicing Assets and Liabilities, SFAS 156

985-20 Costs of software to be sold


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