§483 — Interest on certain deferred payments
55 cases·8 followed·18 distinguished·5 overruled·24 cited—15% support
Statute Text — 26 U.S.C. §483
For purposes of this title, in the case of any payment—
under any contract for the sale or exchange of any property, and
to which this section applies,
there shall be treated as interest that portion of the total unstated interest under such contract which, as determined in a manner consistent with the method of computing interest under section 1272(a), is properly allocable to such payment.
For purposes of this section, the term “total unstated interest” means, with respect to a contract for the sale or exchange of property, an amount equal to the excess of—
the sum of the payments to which this section applies which are due under the contract, over
the sum of the present values of such payments and the present values of any interest payments due under the contract.
For purposes of the preceding sentence, the present value of a payment shall be determined under the rules of section 1274(b)(2) using a discount rate equal to the applicable Federal rate determined under section 1274(d).
Except as provided in subsection (d), this section 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 1 year after the date of such sale or exchange, and
under which there is total unstated interest.
For purposes of this section, a debt instrument of the purchaser which is given in consideration for the sale or exchange of property shall not be treated as a payment, and any payment due under such debt instrument shall be treated as due under the contract for the sale or exchange.
For purposes of this subsection, the term “debt instrument” has the meaning given such term by section 1275(a)(1).
This section shall not apply to any debt instrument for which an issue price is determined under section 1273(b) (other than paragraph (4) thereof) or section 1274.
This section shall not apply to any payment on account of the sale or exchange of property if it can be determined at the time of such sale or exchange that the sales price cannot exceed $3,000.
In the case of the purchaser, the tax treatment of amounts paid on account of the sale or exchange of property shall be made without regard to this section if any such amounts are treated under section 163(b) as if they included interest.
In the case of any transfer described in section 1235(a) (relating to sale or exchange of patents), this section shall not apply to any amount contingent on the productivity, use, or disposition of the property transferred.
In the case of any qualified sale, the discount rate used in determining the total unstated interest rate under subsection (b) shall not exceed 6 percent, compounded semiannually.
For purposes of this subsection, the term “qualified sale” means any sale or exchange of land by an individual to a member of such individual’s family (within the meaning of section 267(c)(4)).
Paragraph (1) shall not apply to any qualified sale between individuals made during any calendar year to the extent that the sales price for such sale (when added to the aggregate sales price for prior qualified sales between such individuals during the calendar year) exceeds $500,000.
Paragraph (1) shall not apply to any sale or exchange if any party to such sale or exchange is a nonresident alien individual.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section including regulations providing for the application of this section in the case of—
any contract for the sale or exchange of property under which the liability for, or the amount or due date of, a payment cannot be determined at the time of the sale or exchange, or
any change in the liability for, or the amount or due date of, any payment (including interest) under a contract for the sale or exchange of property.
For treatment of assumptions, see section l274(c)(4).
For special rules for certain transactions where stated principal amount does not exceed $2,800,000, see section 1274A.
For special rules in case of the borrower under certain loans for personal use, see section 1275(b).
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.483-1 Interest on certain deferred payments
- Treas. Reg. §Treas. Reg. §1.483-1(a) Amount constituting interest in certain deferred payment transactions—(1) In general.
- Treas. Reg. §Treas. Reg. §1.483-1(b) Definitions—(1) Deferred payments.
- Treas. Reg. §Treas. Reg. §1.483-1(c) Exceptions to and limitations on the application of section 483—(1) In general.
- Treas. Reg. §Treas. Reg. §1.483-1(d) Assumptions.
- Treas. Reg. §Treas. Reg. §1.483-1(e) Aggregation rule.
- Treas. Reg. §Treas. Reg. §1.483-1(f) Effective date.
- Treas. Reg. §Treas. Reg. §1.483-1(v) Options.
- Treas. Reg. §Treas. Reg. §1.483-2 Unstated interest
- Treas. Reg. §Treas. Reg. §1.483-2(a) In general—(1) Adequate stated interest.
- Treas. Reg. §Treas. Reg. §1.483-2(b) Operational rules—(1) In general.
- Treas. Reg. §Treas. Reg. §1.483-2(c) Examples.
- Treas. Reg. §Treas. Reg. §1.483-2(d) Effective date.
- Treas. Reg. §Treas. Reg. §1.483-2(i) §1.483-2(i)
- Treas. Reg. §Treas. Reg. §1.483-3 Test rate of interest applicable to a contract
- Treas. Reg. §Treas. Reg. §1.483-3(a) General rule.
- Treas. Reg. §Treas. Reg. §1.483-3(b) Lower rate for certain sales or exchanges of land between related individuals—(1) Test rate.
- Treas. Reg. §Treas. Reg. §1.483-3(c) Effective date.
- Treas. Reg. §Treas. Reg. §1.483-3(i) Definition of family members.
- Treas. Reg. §Treas. Reg. §1.483-4 Contingent payments
- Treas. Reg. §Treas. Reg. §1.483-4(a) In general.
- Treas. Reg. §Treas. Reg. §1.483-4(b) Examples.
- Treas. Reg. §Treas. Reg. §1.483-4(c) Effective date.
55 Citing Cases
§ 1.483-4(b) (example 2); Cocker v. Commissioner, 68 T.C. 544, 563 (1977); Solomon, 570 F.2d 20, 34. Section 163(a) does not apply to contingent debt.
As relevant here, section 483 applies to such a contract ifthe contract provides for deferred payments and the total payments due under the sales contract are equal to or less than $250,000.
After concessions by the parties, the sole issue for consideration is whether any of the partnerships purchased condominiums in December 1983 for purposes of determining whether deductions may be taken, under section 483,2 for unstated interest.3 FINDINGS OF FACT4 David G.
After concessions by the parties, the sole issue for consideration is whether any of the partnerships purchased condominiums in December 1983 for purposes of determining whether deductions may be taken, under section 483,2 for unstated interest.3 FINDINGS OF FACT4 David G.
- 300 - meaning of section 483, no portion of the sales price would be recharacterized as interest under that section; and (2) if the deferred payment arrangement were a “debt instrument given in consideration for the sale or exchange of property” within the meaning of section 1274, no portion of the sales price would be treated as original issue discount (OID) under
- 300 - meaning of section 483, no portion of the sales price would be recharacterized as interest under that section; and (2) if the deferred payment arrangement were a “debt instrument given in consideration for the sale or exchange of property” within the meaning of section 1274, no portion of the sales price would be treated as original issue discount (OID) under
Petitioner states that, if the $179 million payment were regarded simply as an undifferentiated lump-sum payment for property (“which”, petitioner argues, “strictly speaking, it is”), “the amount of interest included in the lump sum would be determined, for tax purposes, by section 483.” Petitioner states that the applicable section 483 rate was 7 percent a year compounded semiannually, which, petitioner claims, is below the interest rate that gives rise to the 7.5-percent interest payment.
of the tax-free recoveries in personal injury actions and to current deductions for the 59(...continued) Because many contracts for the sale of property that call for contingent payments involve principal payments that are wholly contingent, it is doubtful that these contracts would be viewed as debt instruments and accordingly would be subject to section 483 rather than section 1274.
Garlock also comments at 6-33: Because many contracts for the sale of property that call for contingent payments involve principal payments that are wholly contingent, it is doubtful that these contracts would be viewed as debt instruments and accordingly would be subject to section 483 rather than section 1274.
and GNN’s Federal income tax returns for 1982 through 1988 reported the same. On its 1987 through 1989 returns, GNN treated the 1981 transaction as a sale of Griffin's shares in LRFP, and a portion of the deferred payment as unstated interest under section 483. GNN concedes that its interest deductions in 1987 and 1988 were erroneous and argues only that it is entitled to its interest deduction in 1989. On its 1989 return, GNN deducted $1,049,771 as unstated interest on the transaction with Grif
Each of those cases involves attempts by the taxpayer to deduct, as imputed interest under section 483, portions of installment payments to a former spouse that were made pursuant to a divorce settlement that did not call for interest payments.
and GNN’s Federal income tax returns for 1982 through 1988 reported the same. On its 1987 through 1989 returns, GNN treated the 1981 transaction as a sale of Griffin's shares in LRFP, and a portion of the deferred payment as unstated interest under section 483. GNN concedes that its interest deductions in 1987 and 1988 were erroneous and argues only that it is entitled to its interest deduction in 1989. On its 1989 return, GNN deducted $1,049,771 as unstated interest on the transaction with Grif