rr-02-78.pdf

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Part I

Section 7872.--Treatment of Loans with Below-Market
Interest Rates

Rev. Rul. 2002-78

This revenue ruling publishes the amount that §7872(g)
of the Internal Revenue Code permits a taxpayer to lend to
a qualifying continuing care facility without incurring
imputed interest. The amount is adjusted for inflation for
the years after 1986.
Section 7872 generally treats loans bearing a below-
market interest rate as if they bore interest at the market
rate.
Section 7872(g)(1) provides that, in general, § 7872
does not apply for any calendar year to any below-market
loan made by a lender to a qualified continuing care
facility pursuant to a continuing care contract if the
lender (or the lender's spouse) attains age 65 before the
close of the year.
Section 7872(g)(2) provides that, in the case of loans
made after October 11, 1985, and before 1987, § 7872(g)(1)
applies only to the extent that the aggregate outstanding
amount of any loan to which § 7872(g) applies (determined
without regard to § 7872(g)(2)), when added to the

aggregate outstanding amount of all other previous loans
between the lender (or the lender's spouse) and any
qualified continuing care facility to which § 7872(g)(1)
applies, does not exceed $90,000.
Section 7872(g)(5) provides that, for loans made
during any calendar year after 1986 to which § 7872(g)(1)
applies, the $90,000 limit specified in § 7872(g)(2) is in-
creased by an inflation adjustment. The inflation adjust-
ment for any calendar year is the percentage (if any) by
which the Consumer Price Index (CPI) for the preceding
calendar year exceeds the CPI for calendar year 1985.
Section 7872(g)(5) states that the CPI for any calendar
year is the average of the CPI as of the close of the 12-
month period ending on September 30 of that calendar year.
Table 1 sets forth the amount specified in §7872(g)(2)
of the Code. The amount is increased by the inflation
adjustment for the years 1987-2003.

REV. RUL. 2002-78
TABLE 1
Limit under § 7872(g)(2)

Year Amount
Before 1987 $ 90,000
1987 $ 92,200
1988 $ 94,800
1989 $ 98,800
1990 $103,500
1991 $108,600
1992 $114,100
1993 $117,500
1994 $121,100
1995 $124,300
1996 $127,800
1997 $131,300
1998 $134,800
1999 $137,000
2000 $139,700
2001 $144,100
2002 $148,800
2003 $151,000

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

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2001-64, 2001-53 I.R.B. 640, is supplemented
and superseded.

DRAFTING INFORMATION
The author of this revenue ruling is Avital Grunhaus
of the Office of the Associate Chief Counsel (Financial
Institutions and Products). For further information
regarding this revenue ruling, please contact Mrs. Grunhaus
on (202) 622-3940 (not a toll-free call).