[Code of Federal Regulations] [Title 26, Volume 14] [Revised as of April 1, 2004] From the U.S. Government Printing Office via GPO Access [CITE: 26CFR19.3-1] [Page 239-242] TITLE 26--INTERNAL REVENUE CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED) PART 19_TEMPORARY REGULATIONS UNDER THE REVENUE ACT OF 1964--Table of Contents Sec. 19.3-1 Interest on certain deferred payments; interest rate for use in determining whether there is total unstated interest under a contract. (a) In general. Section 224(a) of the Revenue Act of 1964 adds a new section 483 to the Internal Revenue Code of 1954. Section 483(a) provides, generally, that in the case of any contract for the sale or exchange of property (which is a capital asset or section 1231 property) there shall be treated as interest that part of a payment to which section 483 applies which bears the same ratio to the amount of such payment as the total unstated interest under such contract bears to the total of the payments to which such section applies [[Page 240]] which are due under the contract. Section 483(b) defines the term ``total unstated interest'', with respect to a contract for the sale or exchange of property, as an amount equal to the excess of-- (1) The sum of the payments to which section 483 applies which are due under the contract, over (2) The sum of the present values of such payments and the present values of any interest payments due under the contract. Section 483(b) further provides that, for purposes of section 483(b)(2), the present value of a payment shall be determined, as of the date of the sale or exchange, by discounting such payment at the rate, and in the manner, provided in regulations prescribed by the Secretary or his delegate, and that such regulations shall provide for discounting on the basis of 6-month brackets and shall provide that the present value of any interest payment due not more than 6 months after the date of the sale or exchange is an amount equal to 100 percent of such payment. Section 483(c) provides that, except as provided in section 483(f) (relating to exceptions and limitations), section 483 shall apply to any payment on account of the sale or exchange of property which constitutes part or all of the sales price and which is due more than 6 months after the date of such sale or exchange under a contract under which some or all of the payments are due more than one year after the date of such sale or exchange, and under which, using a rate provided by regulations (for purposes of section 483(c)(1)(B)), there is total unstated interest. Section 483(c) further provides that any rate prescribed for determining whether there is total unstated interest for purposes of section 483(c)(1)(B) shall be at least one percentage point lower than the rate prescribed for purposes of section 483(b)(2). (b) Rate of interest and table of present values for purposes of section 483(c)(1)(B). For purposes of determining under section 483(c)(1)(B) whether there is total unstated interest under a contract (other than a contract of sale or exchange under which the purchaser is the United States, a State, or any other purchaser described in section 103) which provides for the payment of some interest, a rate of 4 percent per annum simple interest shall be used. As an illustration of the meaning of simple interest, if a contract provides for payments of $6,000 in 3 equal installments of $2,000 plus 4 percent per annum simple interest, such installments of principal and interest being due 1, 2, and 3 years, respectively, from the date of the sale, the amount of interest due with the first installment is $80 ($2,000x0.04x1), the amount of interest due with the second installment is $160 ($2,000x0.04x2), and the amount of interest due with the third installment is $240 ($2,000x0.04x3). Section 483 shall not apply if the interest payments specified in a contract are at a rate of at least 4 percent per annum, whether simple or compounded. In all other cases, for purposes of determining, under section 483(c)(1)(B), whether there is total unstated interest, under a contract (not involving a purchaser described in section 103), the following table, which provides for discounting payments at a 4 percent per annum simple interest rate, shall be used for computing the present value of a payment to which section 483 applies which is due under the contract, and the present value of any interest payment due under the contract: Present Value of Deferred Payment (4 Percent Per Annum Simple Interest) ------------------------------------------------------------------------ Number of months deferred --------------------------------------------- Present value of $1 at 4% At least But less than simple interest ------------------------------------------------------------------------ 0 6 1.00000 6 9 .98039 9 15 .96154 15 21 .94340 21 27 .92593 27 33 .90909 33 39 .89286 39 45 .87719 45 51 .86207 51 57 .84746 57 63 .83333 63 69 .81967 69 75 .80645 75 81 .79365 81 87 .78125 87 93 .76923 93 99 .75758 99 105 .74627 105 111 .73529 111 117 .72464 117 123 .71429 [[Page 241]] 123 129 .70423 129 135 .69444 135 141 .68493 141 147 .67568 147 153 .66667 153 159 .65789 159 165 .64935 165 171 .64103 171 177 .63291 177 183 .62500 183 189 .61728 189 195 .60976 195 201 .60241 201 207 .59524 207 213 .58824 213 219 .58140 219 225 .57471 225 231 .56818 231 237 .56180 237 243 .55556 243 249 .54945 249 255 .54348 255 261 .53763 261 267 .53191 267 273 .52632 273 279 .52083 279 285 .51546 285 291 .51020 291 297 .50505 297 303 .50000 303 309 .49505 309 315 .49020 315 321 .48544 321 327 .48077 327 333 .47619 333 339 .47170 339 345 .46729 345 351 .46296 351 357 .45872 357 363 .45455 363 369 .45045 369 375 .44643 375 381 .44248 381 387 .43860 387 393 .43478 393 399 .43103 399 405 .42735 405 411 .42373 411 417 .42017 417 423 .41667 423 429 .41322 429 435 .40984 435 441 .40650 441 447 .40323 447 453 .40000 453 459 .39683 459 465 .39370 465 471 .39063 471 477 .38760 477 483 .38462 483 489 .38168 489 495 .37879 495 501 .37594 501 507 .37313 507 513 .37037 513 519 .36765 519 525 .36496 525 531 .36232 531 537 .35971 537 543 .35714 543 549 .35461 549 555 .35211 555 561 .34965 561 567 .34722 567 573 .34483 573 579 .34247 579 585 .34014 585 591 .33784 591 597 .33557 597 603 .33333 603 609 .33113 609 615 .32895 615 621 .32680 621 627 .32468 627 633 .32258 633 639 .32051 639 645 .31847 645 651 .31646 651 657 .31447 657 663 .31250 663 669 .31056 669 675 .30864 675 681 .30675 681 687 .30488 687 693 .30303 693 699 .30120 699 705 .29940 705 711 .29762 711 717 .29586 717 723 .29412 ------------------------------------------------------------------------ To compute the present value of a payment, multiply the amount of the payment by the factor contained in the present value column for the appropriate number of months the payment is deferred. For example, the present value of an installment payment of $5,000 due 2 years (24 months) from the date of the sale would be $4,629.65 ($5,000x0.92593). (c) Effective date. The provisions of section 483 and these temporary regulations shall apply to payments made after December 31, 1963, on account of [[Page 242]] sales or exchanges of property occurring after June 30, 1963, other than any sale or exchange made pursuant to a binding written contract (including an irrevocable written option) entered into before July 1, 1963. [T.D. 6720, 29 FR 4882, Apr. 7, 1964] [[Page 243]]