26 C.F.R. PART 19—TEMPORARY REGULATIONS UNDER THE REVENUE ACT OF 1964


Title 26 - Internal Revenue


Title 26: Internal Revenue

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PART 19—TEMPORARY REGULATIONS UNDER THE REVENUE ACT OF 1964

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§ 19.3-1   Interest on certain deferred payments; interest rate for use in determining whether there is total unstated interest under a contract.


Authority:  26 U.S.C. 7805.

§ 19.3-1   Interest on certain deferred payments; interest rate for use in determining whether there is total unstated interest under a contract.
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(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 ($2,000×0.04×1), the amount of interest due with the second installment is $160 ($2,000×0.04×2), and the amount of interest due with the third installment is $240 ($2,000×0.04×3). 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 ($5,000×0.92593).

(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]

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