§ 7872.
(b)
Treatment of other below-market loans
(1)
In general
For purposes of this title, in the case of any below-market loan to which this section applies and to which subsection (a)(1) does not apply, the lender shall be treated as having transferred on the date the loan was made (or, if later, on the first day on which this section applies to such loan), and the borrower shall be treated as having received on such date, cash in an amount equal to the excess of—
(A)
the amount loaned, over
(B)
the present value of all payments which are required to be made under the terms of the loan.
(2)
Obligation treated as having original issue discount
For purposes of this title—
(B)
Amount in addition to other original issue discount
(c)
Below-market loans to which section applies
(1)
In general
Except as otherwise provided in this subsection and subsection (g), this section shall apply to—
(B)
Compensation-related loans
Any below-market loan directly or indirectly between—
(i)
an employer and an employee, or
(ii)
an independent contractor and a person for whom such independent contractor provides services.
(C)
Corporation-shareholder loans
(E)
Other below-market loans
(F)
Loans to qualified continuing care facilities
(2)
$10,000 de minimis exception for gift loans between individuals
(B)
De minimis exception not to apply to loans attributable to acquisition of income-producing assets
(3)
$10,000 de minimis exception for compensation-related and corporate-shareholder loans
(B)
Exception not to apply where 1 of principal purposes is tax avoidance
(e)
Definitions of below-market loan and forgone interest
For purposes of this section—
(1)
Below-market loan
The term “below-market loan” means any loan if—
(A)
in the case of a demand loan, interest is payable on the loan at a rate less than the applicable Federal rate, or
(B)
in the case of a term loan, the amount loaned exceeds the present value of all payments due under the loan.
(2)
Forgone interest
The term “forgone interest” means, with respect to any period during which the loan is outstanding, the excess of—
(A)
the amount of interest which would have been payable on the loan for the period if interest accrued on the loan at the applicable Federal rate and were payable annually on the day referred to in subsection (a)(2), over
(B)
any interest payable on the loan properly allocable to such period.
(f)
Other definitions and special rules
For purposes of this section—
(1)
Present value
The present value of any payment shall be determined in the manner provided by regulations prescribed by the Secretary—
(A)
as of the date of the loan, and
(B)
by using a discount rate equal to the applicable Federal rate.
(2)
Applicable Federal rate
(7)
Husband and wife treated as 1 person
(8)
Loans to which section 483, 643(i), or 1274 applies
(9)
No withholding
No amount shall be withheld under chapter 24 with respect to—
(A)
any amount treated as transferred or retransferred under subsection (a), and
(B)
any amount treated as received under subsection (b).
(10)
Special rule for term loans
(11)
Time for determining rate applicable to employee relocation loans
(B)
Paragraph only to apply to cases to which section 217 applies
(g)
Exception for certain loans to qualified continuing care facilities
(3)
Continuing care contract
For purposes of this section, the term “continuing care contract” means a written contract between an individual and a qualified continuing care facility under which—
(A)
the individual or individual’s spouse may use a qualified continuing care facility for their life or lives,
(B)
the individual or individual’s spouse—
(i)
will first—
(I)
reside in a separate, independent living unit with additional facilities outside such unit for the providing of meals and other personal care, and
(II)
not require long-term nursing care, and
(ii)
then will be provided long-term and skilled nursing care as the health of such individual or individual’s spouse requires, and
(C)
no additional substantial payment is required if such individual or individual’s spouse requires increased personal care services or long-term and skilled nursing care.
(4)
Qualified continuing care facility
(A)
In general
For purposes of this section, the term “qualified continuing care facility” means 1 or more facilities—
(i)
which are designed to provide services under continuing care contracts, and
(ii)
substantially all of the residents of which are covered by continuing care contracts.
(B)
Substantially all facilities must be owned or operated by borrower
(C)
Nursing homes excluded
(5)
Adjustment of limit for inflation
In the case of any loan made during any calendar year after 1986, the dollar amount in paragraph (2) 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 1985” 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).
(6)
Suspension of application
(Added [Pub. L. 98–369, div. A, title I, § 172(a)], July 18, 1984, [98 Stat. 699]; amended [Pub. L. 99–121, title II], §§ 201, 202, Oct. 11, 1985, [99 Stat. 511–513]; [Pub. L. 99–514, title V, § 511(d)(1)], title XVIII, §§ 1812(b)(2)–(4), 1854(c)(2)(B), Oct. 22, 1986, [100 Stat. 2248], 2834, 2879; [Pub. L. 100–647, title I], §§ 1005(c)(15), 1018(u)(48), Nov. 10, 1988, [102 Stat. 3393], 3593; [Pub. L. 104–188, title I], §§ 1602(b)(7), 1704(t)(58), 1906(c)(2), Aug. 20, 1996, [110 Stat. 1834], 1890, 1916; [Pub. L. 105–34, title III, § 312(d)(1)], Aug. 5, 1997, [111 Stat. 839]; [Pub. L. 105–206, title VI, § 6023(30)], July 22, 1998, [112 Stat. 826]; [Pub. L. 106–554, § 1(a)(7) [title III, § 319(30)]], Dec. 21, 2000, [114 Stat. 2763], 2763A–648;