(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 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
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 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]
SUBCHAPTER B_ESTATE AND GIFT TAXES