Code of Federal Regulations · Section
§ 1.1274A-1 — a-1 Special Rules For Certain Transactions Where Stated Principal Amount Does Not Exceed $2,800,000
26 C.F.R. § 1.1274A-1
(a) In general. Section 1274A allows the use of a lower test rate for purposes of sections 483 and 1274 in the case of a qualified debt instrument (as defined in section 1274A(b)) and, if elected by the borrower and the lender, the use of the cash receipts and disbursements method of accounting for interest on a cash method debt instrument (as defined in section 1274A(c)(2)). This section provides special rules for qualified debt instruments and cash method debt instruments.
(b) Rules for both qualified and cash method debt instruments—(1) Sale-leaseback transactions. A debt instrument issued in a sale-leaseback transaction (within the meaning of section 1274(e)) cannot be either a qualified debt instrument or a cash method debt instrument.
(2) Debt instruments calling for contingent payments. A debt instrument that provides for contingent payments cannot be a qualified debt instrument unless it can be determined at the time of the sale or exchange that the maximum stated principal amount due under the debt instrument cannot exceed the amount specified in section 1274A(b). Similarly, a debt instrument that provides for contingent payments cannot be a cash method debt instrument unless it can be determined at the time of the sale or exchange that the maximum stated principal amount due under the debt instrument cannot exceed the amount specified in section 1274A(c)(2)(A).
(3) Aggregation of transactions—(i) General rule. The aggregation rules of section 1274A(d)(1) are applied using a facts and circumstances test.
(ii) Examples. The following examples illustrate the application of section 1274A(d)(1) and paragraph (b)(3)(i) of this section.
In two transactions evidenced by separate sales agreements, A sells undivided half interests in Blackacre to B. The sales are pursuant to a plan for the sale of a 100 percent interest in Blackacre to B. These sales or exchanges are part of a series of related transactions and, thus, are treated as a single sale for purposes of section 1274A.
Pursuant to a plan, unrelated individuals X and Y purchase undivided half interests in Blackacre from A and subsequently contribute these interests to a partnership in exchange for equal interests in the partnership. These purchases are treated as part of the same transaction and, thus, are treated as a single sale for purposes of section 1274A.
Fifteen unrelated individuals own all of the stock of X Corporation. Y Corporation makes a tender offer to these 15 shareholders. The terms offered to each shareholder are identical. Shareholders holding a majority of the shares of X Corporation elect to tender their shares pursuant to Y Corporation's offer. These sales are part of the same transaction and, thus, are treated as a single sale for purposes of section 1274A.
Pursuant to a newspaper advertisement, X Corporation offers for sale similar condominiums in a single building. The prices of the units vary due to a variety of factors, but the financing terms offered by X Corporation to all buyers are identical. The units are purchased by unrelated buyers who decided whether to purchase units in the building at the price and on the terms offered by X Corporation, without regard to the actions of other buyers. Because each buyer acts individually, the sales are not part of the same transaction or a series of related transactions and, thus, are treated as separate sales.
(4) Inflation adjustment of dollar amounts. Under section 1274A(d)(2), the dollar amounts specified in sections 1274A(b) and 1274A(c)(2)(A) are adjusted for inflation. The dollar amounts, adjusted for inflation, are published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii) of this chapter).
(c) Rules for cash method debt instruments—(1) Time and manner of making cash method election. The borrower and lender make the election described in section 1274A(c)(2)(D) by jointly signing a statement that includes the names, addresses, and taxpayer identification numbers of the borrower and lender, a clear indication that an election is being made under section 1274A(c)(2), and a declaration that the debt instrument with respect to which the election is being made fulfills the requirements of a cash method debt instrument. Both the borrower and the lender must sign this statement not later than the earlier of the last day (including extensions) for filing the Federal income tax return of the borrower or lender for the taxable year in which the debt instrument is issued. The borrower and lender should attach this signed statement (or a copy thereof) to their timely filed Federal income tax returns.
(2) Successors of electing parties. Except as otherwise provided in this paragraph (c)(2), the cash method election under section 1274A(c) applies to any successor of the electing lender or borrower. Thus, for any period after the transfer of a cash method debt instrument, the successor takes into account the interest (including unstated interest) on the instrument under the cash receipts and disbursements method of accounting. Nevertheless, if the lender (or any successor thereof) transfers the cash method debt instrument to a taxpayer who uses an accrual method of accounting, section 1272 rather than section 1274A(c) applies to the successor of the lender with respect to the debt instrument for any period after the date of the transfer. The borrower (or any successor thereof), however, remains on the cash receipts and disbursements method of accounting with respect to the cash method debt instrument.
(3) Modified debt instrument. In the case of a debt instrument issued in a debt-for-debt exchange that qualifies as an exchange under section 1001, the debt instrument is eligible for the election to be a cash method debt instrument if the other prerequisites to making the election in section 1274A(c) are met. However, if a principal purpose of the modification is to defer interest income or deductions through the use of the election, then the debt instrument is not eligible for the election.
(4) Debt incurred or continued to purchase or carry a cash method debt instrument. If a debt instrument is incurred or continued to purchase or carry a cash method debt instrument, rules similar to those under section 1277 apply to determine the timing of the interest deductions for the debt instrument. For purposes of the preceding sentence, rules similar to those under section 265(a)(2) apply to determine whether a debt instrument is incurred or continued to purchase or carry a cash method debt instrument.
Authorizing Statute
-
Rules and regulations26 U.S.C. § 7805
-
Advanced manufacturing production credit26 U.S.C. § 45X
-
Alcohol, etc., used as fuel26 U.S.C. § 40
-
Gross income defined26 U.S.C. § 61
-
Transfers of excess pension assets to retiree health accounts26 U.S.C. § 420
-
Partial exclusion for gain from certain small business stock26 U.S.C. § 1202
-
Tax treatment of stripped bonds26 U.S.C. § 1286
-
Current taxation of income from qualified electing funds26 U.S.C. § 1293
-
Imposition of tax on certain foreign procurement26 U.S.C. § 5000C
-
Returns regarding payments of interest26 U.S.C. § 6049
-
Signing of returns and other documents26 U.S.C. § 6061
-
General requirement of return, statement, or list26 U.S.C. § 6011
-
Income from discharge of indebtedness26 U.S.C. § 108
-
Indian general welfare benefits26 U.S.C. § 139E
-
Bonds must be registered to be tax exempt; other requirements26 U.S.C. § 149
-
Trade or business expenses26 U.S.C. § 162
-
Accelerated cost recovery system26 U.S.C. § 168
-
Amortizable bond premium26 U.S.C. § 171
-
Golden parachute payments26 U.S.C. § 280G
-
Distributions of stock and stock rights26 U.S.C. § 305
-
Transfer to corporation controlled by transferor26 U.S.C. § 351
-
Special rules for long-term contracts26 U.S.C. § 460
-
Determination of basis of partner’s interest26 U.S.C. § 705
-
Taxes of foreign countries and of possessions of United States26 U.S.C. § 901
-
Controlled foreign corporations; United States persons26 U.S.C. § 957
-
New energy efficient home credit26 U.S.C. § 45L
-
2-percent floor on miscellaneous itemized deductions26 U.S.C. § 67
-
Certain death benefits26 U.S.C. § 101
-
Qualified business income26 U.S.C. § 199A
-
Installment method26 U.S.C. § 453
-
Certain payments for the use of property or services26 U.S.C. § 467
-
Partners, not partnership, subject to tax26 U.S.C. § 701
-
Extent of recognition of gain or loss on distribution26 U.S.C. § 731
-
Capitalization of certain policy acquisition expenses26 U.S.C. § 848
-
Special rules for determining source26 U.S.C. § 863
-
Income of foreign governments and of international organizations26 U.S.C. § 892
-
Definitions and special rules26 U.S.C. § 6241
-
Computation and payment of tax26 U.S.C. § 1503
-
Adjusted gross income defined26 U.S.C. § 62
-
Treatment of loans with below-market interest rates26 U.S.C. § 7872
-
Basis to distributees26 U.S.C. § 358
-
Minimum participation standards26 U.S.C. § 410
-
Other definitions and special rules26 U.S.C. § 860G
-
Adjustments required by changes in method of accounting26 U.S.C. § 481
-
Definitions26 U.S.C. § 7701
-
Insurance income26 U.S.C. § 953
-
Returns relating to actions affecting basis of specified securities26 U.S.C. § 6045B
-
Information relating to certain trusts and annuity plans26 U.S.C. § 6047
-
Enhanced oil recovery credit26 U.S.C. § 43
-
Energy efficient commercial buildings deduction26 U.S.C. § 179D
-
Redemption through use of related corporations26 U.S.C. § 304
-
Certain stock purchases treated as asset acquisitions26 U.S.C. § 338
-
Special limitations on certain excess credits, etc.26 U.S.C. § 383
-
Optional treatment of elective deferrals as Roth contributions26 U.S.C. § 402A
-
General rule for taxable year of inclusion26 U.S.C. § 451
-
Qualified ABLE programs26 U.S.C. § 529A
-
Charitable remainder trusts26 U.S.C. § 664
-
Nonrecognition of gain or loss on contribution26 U.S.C. § 721
-
Investment of earnings in United States property26 U.S.C. § 956
-
Definitions and special rule26 U.S.C. § 1377
-
Relief from joint and several liability on joint return26 U.S.C. § 6015
-
Return of S corporation26 U.S.C. § 6037
-
Notice of certain transfers to foreign persons26 U.S.C. § 6038B
-
Information at source26 U.S.C. § 6041
-
Imposition of accuracy-related penalty on underpayments26 U.S.C. § 6662
-
Tax imposed26 U.S.C. § 1
-
Railroad track maintenance credit26 U.S.C. § 45G
-
Zero-emission nuclear power production credit26 U.S.C. § 45U
-
Rehabilitation credit26 U.S.C. § 47
-
Clean electricity investment credit26 U.S.C. § 48E
-
Special rules26 U.S.C. § 52
-
Election to expense certain depreciable business assets26 U.S.C. § 179
-
Individual retirement accounts26 U.S.C. § 408
-
Special rules for nondealers26 U.S.C. § 453A
-
Deductions limited to amount at risk26 U.S.C. § 465
-
Exemption from tax on corporations, certain trusts, etc.26 U.S.C. § 501
-
Definition of regulated investment company26 U.S.C. § 851
-
Source rules for personal property sales26 U.S.C. § 865
-
Tax on nonresident alien individuals26 U.S.C. § 871
-
Foreign base company income26 U.S.C. § 954
-
S corporation defined26 U.S.C. § 1361
-
Definitions26 U.S.C. § 1402
-
Distributions of property26 U.S.C. § 301
-
Life insurance contract defined26 U.S.C. § 7702
-
Previously-owned clean vehicles26 U.S.C. § 25E
-
Electricity produced from certain renewable resources, etc.26 U.S.C. § 45
-
Clean fuel production credit26 U.S.C. § 45Z
-
Taxation of employee annuities26 U.S.C. § 403
-
Last-in, first-out inventories26 U.S.C. § 472
-
Allocation of income and deductions among taxpayers26 U.S.C. § 482
-
Definitions applicable to subparts A, B, C, and D26 U.S.C. § 643
-
Taxable years of partner and partnership26 U.S.C. § 706
-
Disposition of investment in United States real property26 U.S.C. § 897
-
Administrative adjustment request by partnership26 U.S.C. § 6227
-
Citizens or residents of the United States living abroad26 U.S.C. § 911
-
Residence and source rules involving possessions26 U.S.C. § 937
-
Rules relating to expatriated entities and their foreign parents26 U.S.C. § 7874
-
Regulations26 U.S.C. § 1502
-
Capitalization and inclusion in inventory costs of certain expenses26 U.S.C. § 263A
-
Foreign corporations26 U.S.C. § 367
-
Roth IRAs26 U.S.C. § 408A
-
Minimum vesting standards26 U.S.C. § 411
-
Partner’s distributive share26 U.S.C. § 704
-
Unrealized receivables and inventory items26 U.S.C. § 751
-
Taxation of residual interests26 U.S.C. § 860C
-
Exclusions from gross income26 U.S.C. § 883
-
Income affected by treaty26 U.S.C. § 894
-
Other definitions and special rules26 U.S.C. § 989
-
Special rules26 U.S.C. § 1474
-
Returns of brokers26 U.S.C. § 6045
-
Information returns of tax return preparers26 U.S.C. § 6060
-
Authority to make credits or refunds26 U.S.C. § 6402
-
Failure by individual to pay estimated income tax26 U.S.C. § 6654
-
Interest on certain home mortgages26 U.S.C. § 25
-
Credit for qualified commercial clean vehicles26 U.S.C. § 45W
-
Interest on State and local bonds26 U.S.C. § 103
-
Qualified lessee construction allowances for short-term leases26 U.S.C. § 110
-
Losses26 U.S.C. § 165
-
Charitable, etc., contributions and gifts26 U.S.C. § 170
-
Incentive stock options26 U.S.C. § 422
-
Deemed paid credit for subpart F inclusions26 U.S.C. § 960
-
Election of mark to market for marketable stock26 U.S.C. § 1296
-
Returns relating to certain life insurance contract transactions26 U.S.C. § 6050Y
-
Clean vehicle credit26 U.S.C. § 30D
-
Credit for carbon oxide sequestration26 U.S.C. § 45Q
-
Amount of credit26 U.S.C. § 46
-
Advanced manufacturing investment credit26 U.S.C. § 48D
-
Arbitrage26 U.S.C. § 148
-
Amortization of goodwill and certain other intangibles26 U.S.C. § 197
-
Interest on education loans26 U.S.C. § 221
-
Disallowance of certain entertainment, etc., expenses26 U.S.C. § 274
-
Qualifications for tax credit employee stock ownership plans26 U.S.C. § 409
-
Unrelated debt-financed income26 U.S.C. § 514
-
Rules for allocation of basis26 U.S.C. § 755
-
Rules for certain reserves26 U.S.C. § 807
-
Special rules in case of foreign oil and gas income26 U.S.C. § 907
-
Basis of property acquired from a decedent26 U.S.C. § 1014
-
Special rules26 U.S.C. § 1298
-
Definitions26 U.S.C. § 3401
-
Extension of time for filing returns26 U.S.C. § 6081
-
Renumbered § 45C]26 U.S.C. § 28
-
Credit for production of clean hydrogen26 U.S.C. § 45V
-
Energy credit26 U.S.C. § 48
-
Limitation on credit26 U.S.C. § 904
-
Qualified pension, profit-sharing, and stock bonus plans26 U.S.C. § 401
-
Dependent care assistance programs26 U.S.C. § 129
-
Special rules for nuclear decommissioning costs26 U.S.C. § 468A
-
Mark to market accounting method for dealers in securities26 U.S.C. § 475
-
Basis of distributed property other than money26 U.S.C. § 732
-
Straddles26 U.S.C. § 1092
-
Qualified electing fund26 U.S.C. § 1295
-
Averaging of farm income26 U.S.C. § 1301
-
Withholdable payments to foreign financial institutions26 U.S.C. § 1471
-
Definitions26 U.S.C. § 1504
-
Basis information to persons acquiring property from decedent26 U.S.C. § 6035
-
Information with respect to certain foreign-owned corporations26 U.S.C. § 6038A
-
Returns relating to cash received in trade or business, etc.26 U.S.C. § 6050I
-
Credit for increasing research activities26 U.S.C. § 41
-
Definitions and special rules26 U.S.C. § 150
-
Passive activity losses and credits limited26 U.S.C. § 469
-
Certain expenses for which credits are allowable26 U.S.C. § 280C
-
Assumption of liability26 U.S.C. § 357
-
Complete liquidations of subsidiaries26 U.S.C. § 332
-
Distribution of stock and securities of a controlled corporation26 U.S.C. § 355
-
Period for computation of taxable income26 U.S.C. § 441
-
General rule for taxable year of deduction26 U.S.C. § 461
-
Special rules for modified guaranteed contracts26 U.S.C. § 817A
-
Treatment of variable contracts26 U.S.C. § 817
-
Certain reinsurance agreements26 U.S.C. § 845
-
Failure to file notice of redetermination of foreign tax26 U.S.C. § 6689
-
Branch transactions26 U.S.C. § 987
-
Qualified zone property defined26 U.S.C. § 1397D
-
Withholdable payments to other foreign entities26 U.S.C. § 1472
-
Liquidating, etc., transactions26 U.S.C. § 6043
-
Verification of returns26 U.S.C. § 6065
-
Mode or time of collection26 U.S.C. § 6302
-
Transfer of certain credits26 U.S.C. § 6418
-
American Opportunity and Lifetime Learning credits26 U.S.C. § 25A
-
Refundable credit for coverage under a qualified health plan26 U.S.C. § 36B
-
Clean electricity production credit26 U.S.C. § 45Y
-
Other special rules26 U.S.C. § 50
-
Treatment of community income26 U.S.C. § 66
-
Basis to corporations26 U.S.C. § 362
-
Election of taxable year other than required taxable year26 U.S.C. § 444
-
Transactions between partner and partnership26 U.S.C. § 707
-
Special allocation rules for certain asset acquisitions26 U.S.C. § 1060
-
Discounted unpaid losses defined26 U.S.C. § 846
-
Definitions and special rules26 U.S.C. § 864
-
Capital asset defined26 U.S.C. § 1221
-
Interest on tax deferral26 U.S.C. § 1291
-
Passive foreign investment company26 U.S.C. § 1297
-
Withholding of tax on nonresident aliens26 U.S.C. § 1441
-
Returns as to interests in foreign partnerships26 U.S.C. § 6046A
-
State and local income tax refunds26 U.S.C. § 6050E
-
Returns relating to exchanges of certain partnership interests26 U.S.C. § 6050K
-
Returns relating to higher education tuition and related expenses26 U.S.C. § 6050S
-
Reporting of health insurance coverage26 U.S.C. § 6055
-
Low-income housing credit26 U.S.C. § 42
-
New markets tax credit26 U.S.C. § 45D
-
Definitions and special rules26 U.S.C. § 414
-
Qualified asset account; limitation on additions to account26 U.S.C. § 419A
-
General rule for methods of accounting26 U.S.C. § 446
-
Interest on certain deferred payments26 U.S.C. § 483
-
Reserves for losses on loans of banks26 U.S.C. § 585
-
Certain revocable trusts treated as part of estate26 U.S.C. § 645
-
Insurance company taxable income26 U.S.C. § 832
-
Income from sources within the United States26 U.S.C. § 861
-
Treatment of certain foreign currency transactions26 U.S.C. § 988
-
Functional currency26 U.S.C. § 985
-
Other definitions and special rules26 U.S.C. § 1275
-
Election to extend time for payment of tax on undistributed earnings26 U.S.C. § 1294
-
Requirement to maintain minimum essential coverage26 U.S.C. § 5000A
-
Returns by exempt organizations26 U.S.C. § 6033
-
Information with respect to foreign financial assets26 U.S.C. § 6038D
-
Returns relating to the cancellation of indebtedness by certain entities26 U.S.C. § 6050P
-
Identifying numbers26 U.S.C. § 6109
-
Elective payment of applicable credits26 U.S.C. § 6417
-
Certain fringe benefits26 U.S.C. § 132
-
Dependent defined26 U.S.C. § 152
-
Interest26 U.S.C. § 163
-
Bad debts26 U.S.C. § 166
-
Special rules for credits and deductions26 U.S.C. § 642
-
General rule for inventories26 U.S.C. § 471
-
Political organizations26 U.S.C. § 527
-
Special rules applicable to sections 661 and 66226 U.S.C. § 663
-
Allowance of deductions and credits26 U.S.C. § 874
-
Branch profits tax26 U.S.C. § 884
-
Tax imposed on certain built-in gains26 U.S.C. § 1374
-
Foreign tax-exempt organizations26 U.S.C. § 1443
-
Valuation tables26 U.S.C. § 7520
-
Losses on small business stock26 U.S.C. § 1244
-
Distributions26 U.S.C. § 1368
-
Definitions26 U.S.C. § 1473
-
Information with respect to certain fines, penalties, and other amounts26 U.S.C. § 6050X
-
Failure by corporation to pay estimated income tax26 U.S.C. § 6655