Page:United States Statutes at Large Volume 98 Part 1.djvu/749

 PUBLIC LAW 98-369—JULY 18, 1984

98 STAT. 701

"(A) IN GENERAL.—For purposes of subtitle A, in the case of a gift loan directly between individuals, the amount treated as retransferred by the borrower to the lender as of the close of any year shall not exceed the borrower's net investment income for such year. "(B)

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LIMITATION NOT TO APPLY WHERE i OF PRINCIPAL

PURPOSES IS TAX AVOIDANCE.—Subparagraph (A) shall not apply to any loan the interest arrangements of which have as 1 of their principal purposes the avoidance of any Federal tax. "(C) SPECIAL RULE WHERE MORE THAN i GIFT LOAN OUT-

STANDING.—For purposes of subparagraph (A), in any case ^' in which a borrower has outstanding more than 1 gift loan, the net investment income of such borrower shall be allocated among such loans in proportion to the respective amounts which would be treated as retransferred by the borrower without regard to this paragraph. ,, ,j^ii^ "(D) LIMITATION NOT TO APPLY WHERE AGGREGATE AMOUNT t- * •! • OF LOANS EXCEED $100,000.—This paragraph shall not apply to any loan made by a lender to a borrower for any day on ' which the aggregate outstanding amount of loans between the borrower and lender exceeds $100,000. "(E) N E T INVESTMENT INCOME.—For purposes of this " paragraph— "(i) IN GENERAL.—The term 'net investment income' ,,^l has the meaning given such term by section 163(d)(3). -' " "(ii) D E MINIMIS RULE.—If the net investment income of any borrower for any year does not exceed $1,000, the net investment income of such borrower for such year shall be treated as zero. "(iii) ADDITIONAL AMOUNTS TREATED AS INTEREST.—In determining the net investment income of a person for any year, any amount which would be included in the gross income of such person for such year by reason of J' section 1272 if such section applied to all deferred Ante, p. 533. payment obligations shall be treated as interest reIJ/TJ > ^ ceived by such person for such year. "(iv) DEFERRED PAYMENT OBLIGATIONS.—The term 'deferred payment obligation' includes any market disu ^,i count bond, short-term obligation. United States sav. q, A ings bond, annuity, or similar obligation. sc, "(2) SPECIAL RULE FOR GIFT TAX.—In the case of any gift loan which is a term loan, subsection (b)(1) (and not subsection (a)) shall apply for purposes of chapter 12. 26 USC 2501 et "(e) DEFINITIONS OF BELOW-MARKET LOAN AND FOREGONE INTER-

EST.—For purposes of this section— "(1) BELOW-MARKET LOAN.—The term 'below-market loan' means any loan if— "(A) in the case of a demand loan, interest is payable on the loan at a rate less than the applicable Federal rate, or "(B) in the case of a term loan, the amount loaned exceeds the present value of all payments due under the loan. "(2) FOREGONE INTEREST.—The term 'foregone interest' means, with respect to any period during which the loan is outstanding, the excess of—

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