rr-99-50.pdf

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# Part I

Section 1274A. -- Special Rules for Certain Transactions Where
Stated Principal Amount Does Not Exceed $2,800,000.
(Also §§ 1274, 483; 1.1274A-1.)

## Rev. Rul. 99-50

This revenue ruling provides the dollar amounts, increased
by the 2000 inflation adjustment, for $ 1274A of the Internal
Revenue Code.

BACKGROUND

In general, §§ 483 and 1274 determine the principal amount
of a debt instrument given in consideration for the sale or
exchange of nonpublicly traded property. In addition, any
interest on a debt instrument subject to § 1274 is taken into
account under the original issue discount provisions of the
Code. Section 1274A, however, modifies the rules under §§ 483
and 1274 for certain types of debt instruments.

In the case of a "qualified debt instrument, " the discount
rate used for purposes of $$ 483 and 1274 may not exceed
9 percent, compounded semiannually. Section 1274A (b) defines a
qualified debt instrument as any debt instrument given in
consideration for the sale or exchange of property (other than
new § 38 property within the meaning of $ 48 (b), as in effect
on the day before the date of enactment of the Revenue
Reconciliation Act of 1990) if the stated principal amount of
the instrument does not exceed the amount specified in
§ 1274A (b) . For debt instruments arising out of sales or
exchanges before January 1, 1990, this amount is $2,800,000.

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In the case of a "cash method debt instrument, " as defined
in § 1274A(c), the borrower and lender may elect to use the
cash receipts and disbursements method of accounting. In
particular, for any cash method debt instrument, § 1274 does
not apply, and interest on the instrument is accounted for by
both the borrower and the lender under the cash method of
accounting. A cash method debt instrument is a qualified debt
instrument that meets the following additional requirements:
(A) In the case of instruments arising out of sales or
exchanges before January 1, 1990, 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) § 1274 would have
applied to the debt instrument but for an election under
§ 1274A (c) ; and (D) an election under § 1274A (c) is jointly
made with respect to the debt instrument by the borrower and
lender. Section 1.1274A-1 (c) (1) of the Income Tax Regulations
provides rules concerning the time for, and manner of, making
this election.

Section 1274A (d) (2) provides that, for any debt instrument
arising out of a sale or exchange during any calendar year
after 1989, the dollar amounts stated in § 1274A (b) and
§ 1274A (c) (2) (A) are increased by the inflation adjustment for
the calendar year. Any increase due to the inflation
adjustment is rounded to the nearest multiple of $100 (or, if
the increase is a multiple of $50 and not of $100, the increase

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is increased to the nearest multiple of $100). The inflation
adjustment for any calendar year is the percentage (if any) by
which the CPI for the preceding calendar year exceeds the CPI
for calendar year 1988. Section 1274A (d) (2) (B) defines the CPI
for any calendar year as the average of the Consumer Price
Index as of the close of the 12-month period ending on
September 30 of that calendar year.

### INFLATION-ADJUSTED AMOUNTS

For debt instruments arising out of sales or exchanges
after December 31, 1989, the inflation-adjusted amounts under
§ 1274A are shown in Table 1.

Rev. Rul. 99-50 Table 1 Inflation-Adjusted Amounts Under § 1274A

Calendar Year of Sale or Exchange

1274A (b) Amount (qualified debt instrument)

1274A (c) (2) (A) Amount (cash method debt instrument)

1990

$2,933,200

$2,095,100

1991

$3,079,600

$2,199, 700

1992

$3,234,900

$2,310,600

1993

$3,332,400

$2,380,300

1994

$3,433,500

$2,452,500

1995

$3,523,600

$2,516, 900

1996

$3,622,500

$2,587,500

1997

$3,723,800

$2,659,900

1998

$3,823,100

$2,730,800

1999

$3,885, 500

$2,775, 400

2000

$3,960,100

$2,828,700

Note: These inflation adjustments were computed using the
All-Urban, Consumer Price Index, 1982-1984 base, published
by the Bureau of Labor Statistics.

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Rev. Rul. 98-58, 1998-52 I.R.B. 6 is supplemented and
superseded.

# DRAFTING INFORMATION

The principal author of this revenue ruling is Courtney
Shepardson the Office of the Assistant Chief Counsel (Financial
Institutions and Products) . For further information regarding
this revenue ruling contact Ms. Shepardson on (202) 622-3930 (not
a toll-free call) .