[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.503(e)-3]

[Page 60]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.503(e)-3  Effective dates.

    (a) Section 503(e) and Sec. Sec. 1.503(e)-1 and 1.503(e)-3 are 
effective in the case of an employees' trust described in section 401(a) 
for taxable years ending after March 15, 1956. Thus, if during a taxable 
year ending before March 16, 1956, an employees' trust made a loan which 
meets the requirements of section 503(e), such loan will not be treated 
as made without the receipt of adequate security and will not cause the 
loss of exemption for taxable years ending after March 15, 1956, 
although such loan was not considered adequately secured when made. 
(However, section 503 does not apply to organizations described in 
section 401(a) not referred to in section 4975(g) (2) or (3) for 
transactions occurring after December 31, 1974.)
    (b)(1) In the case of obligations acquired by an employees' trust 
described in section 401(a) before September 2, 1958, which were held on 
that date, the requirements described in paragraphs (c) and (d) of Sec. 
1.503(e)-2 which were not satisfied immediately following the 
acquisition shall be treated as satisfied at that time if those 
requirements would have been satisfied had the obligations been acquired 
on September 2, 1958. For example, on January 3, 1955, an employees' 
trust described in section 401(a) purchased through the New York Stock 
Exchange unsecured debentures issued by the employer corporation. Under 
section 503(e) the acquisition of such debentures by the trust will not 
be treated for taxable years ending after March 15, 1956, as a loan made 
without the receipt of adequate security if the debentures were held by 
the employees' trust on September 2, 1958, and if the requirements of 
paragraphs (c) and (d) of Sec. 1.503(e)-2 which were not met on January 
3, 1955, were met on September 2, 1958, as if that date were the date of 
acquisition.
    (2) In the case of obligations acquired before September 2, 1958, 
which were not held by the employees' trust described in section 401(a) 
on that date, only the requirements described in paragraph (b) of Sec. 
1.503(e)-2 must be satisfied for section 503(e) to be applicable to such 
acquisition. For example, if on December 5, 1956, an employees' trust 
lent money to the employer corporation by purchasing a debenture issued 
by the employer and if the trust sold the debenture on August 1, 1958, 
such loan would not be treated as made without the receipt of adequate 
security if the requirement described in paragraph (b) of Sec. 
1.503(e)-2 was met on December 5, 1956.
    (c) Section 503(e) and Sec. Sec. 1.503(e)-1 and 1.503(e)-2 are 
effective in the case of trusts described in section 501(c)(17) with 
respect to loans made, renewed, or, in the case of demand loans, 
continued after December 31, 1959, and in the case of trusts described 
in section 501(c)(18) with respect to loans made, renewed or, in the 
case of demand loans, continued after December 31, 1969.
    (d) See paragraph (b)(2) of Sec. 1.503(b)-1 for the effective dates 
for the application of the definition of adequate security.

[T.D. 7428, 41 FR 34626, Aug. 16, 1976]