Internal Revenue Code · 26 U.S.C.
§ 1274. Determination of issue price in the case of certain debt instruments issued for property
Official text, no changes From the Office of the Law Revision Counsel, release point 119-121 (current through Public Law 119-121 (October 9, 2026)). Compare it with the official text at uscode.house.gov (external site).
Cite as 26 U.S.C. § 1274
At a glance
Read from the text, the source credit and the official notes. Not part of the law.
- Status
- In force
- Added
- July 18, 1984 by Pub. L. 98–369
- Last amended
- March 23, 2018 by Pub. L. 115–141
- Amendments
- 6 dated changes in the source credit
- Length
- 5 subsections · 1,511 words · about 7 min to read
- Defines
- 2 terms
- Cross-references
- cites 8; cited by 31 Code sections and 50 other regulations
- Regulations
- 5 issued under this section
Except as provided in paragraph (3), the imputed principal amount of any debt instrument shall be equal to the sum of the present values of all payments due under such debt instrument.
In the case of any potentially abusive situation, the imputed principal amount of any debt instrument received in exchange for property shall be the fair market value of such property adjusted to take into account other consideration involved in the transaction.
Clause (i) shall apply only if it can be determined at the time of the sale or exchange that the sales price cannot exceed $1,000,000. For purposes of the preceding sentence, all sales and exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange.
Any debt instrument arising from the sale or exchange by an individual of his principal residence (within the meaning of section 121).
For purposes of clause (i), any consideration (other than a debt instrument) shall be taken into account at its fair market value.
For purposes of this subparagraph, all sales and exchanges which are part of the same transaction (or a series of related transactions) shall be treated as 1 sale or exchange.
Any debt instrument to which section 1273(b)(3) applies.
In the case of any transfer described in section 1235(a) (relating to sale or exchange of patents), any amount contingent on the productivity, use, or disposition of the property transferred.
Any debt instrument to the extent section 483(e) (relating to certain land transfers between related persons) applies to such instrument.
In the case of a debt instrument with a term of: | The applicable Federal rate is: |
|---|---|
Not over 3 years | The Federal short-term rate. |
Over 3 years but not over 9 years | The Federal mid-term rate. |
Over 9 years | The Federal long-term rate. |
During each calendar month, the Secretary shall determine the Federal short-term rate, mid-term rate, and long-term rate which shall apply during the following calendar month.
The Federal short-term rate shall be the rate determined by the Secretary based on the average market yield (during any 1-month period selected by the Secretary and ending in the calendar month in which the determination is made) on outstanding marketable obligations of the United States with remaining periods to maturity of 3 years or less.
The Federal mid-term and long-term rate shall be determined in accordance with the principles of clause (i).
The Secretary may by regulations permit a rate to be used with respect to any debt instrument which is lower than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such lower rate is based on the same principles as the applicable Federal rate and is appropriate for the term of such instrument.
In the case of any sale or exchange, the applicable Federal rate shall be the lowest 3-month rate.
For purposes of subparagraph (A), the term “lowest 3-month rate” means the lowest of the applicable Federal rates in effect for any month in the 3-calendar-month period ending with the 1st calendar month in which there is a binding contract in writing for such sale or exchange.
In determining the term of a debt instrument for purposes of this subsection, under regulations prescribed by the Secretary, there shall be taken into account options to renew or extend.
In the case of any debt instrument to which this subsection applies, the discount rate used under subsection (b)(2)(B) or section 483(b) shall be 110 percent of the applicable Federal rate, compounded semiannually.
Section 1274A shall not apply to any debt instrument to which this subsection applies.
This subsection shall apply to any debt instrument given in consideration for the sale or exchange of any property if, pursuant to a plan, the transferor or any related person leases a portion of such property after such sale or exchange.
(Added Pub. L. 98–369, div. A, title I, § 41(a), July 18, 1984, 98 Stat. 538; amended Pub. L. 99–121, title I, §§ 101(a)(1), (b), (c), 102(b), Oct. 11, 1985, 99 Stat. 505, 506, 508; Pub. L. 99–514, title XVIII, § 1803(a)(14)(A), Oct. 22, 1986, 100 Stat. 2797; Pub. L. 101–239, title VII, § 7721(c)(11), Dec. 19, 1989, 103 Stat. 2400; Pub. L. 104–188, title I, § 1704(t)(78), Aug. 20, 1996, 110 Stat. 1891; Pub. L. 105–34, title III, § 312(d)(1), Aug. 5, 1997, 111 Stat. 839; Pub. L. 115–141, div. U, title IV, § 401(a)(179), Mar. 23, 2018, 132 Stat. 1193.)
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Regulations under this section
Treasury regulations (26 CFR) issued under § 1274
Cross-references
Computed from the citations in the text of Title 26 and 26 CFR.
This section cites 8 other sections
- § 6662(d)(2)(C)(ii) Imposition of accuracy-related penalty on underpayments
- § 6420(c)(2) Gasoline used on farms
- § 1244(c)(3) Losses on small business stock
- § 121 Exclusion of gain from sale of principal residence
- § 1273(b)(3) Determination of amount of original issue discount
- § 1235(a) Sale or exchange of patents
- § 483(e) Interest on certain deferred payments
- § 1274A Special rules for certain transactions where stated principal amount does not exceed $2,800,000
Cited by 31 Code sections
- § 42(b)(1)(C)(ii) Low-income housing credit
- § 108(e)(10)(B) Income from discharge of indebtedness
- § 143(g)(2)(C)(i) Mortgage revenue bonds: qualified mortgage bond and qualified veterans’ mortgage bond
- § 148(h) Arbitrage
- § 163(i)(1)(B)(i) Interest
- § 167(g)(2)(C) Depreciation
- § 249(b) Limitation on deduction of bond premium on repurchase
- § 280G(d)(4) Golden parachute payments
- § 382(f)(2) Limitation on net operating loss carryforwards and certain built-in losses following ownership change
- § 411(c)(2)(C)(iii)(I) Minimum vesting standards
- § 433(b)(5)(B)(i) Minimum funding standards for CSEC plans
- § 453(l)(3)(B)(i)(III) Installment method
- § 460(b)(2)(C) Special rules for long-term contracts
- § 467(d)(2)(B) Certain payments for the use of property or services
- § 468(a)(2)(B)(i) Special rules for mining and solid waste reclamation and closing costs
- § 483(b)(2) Interest on certain deferred payments
- § 514(c)(9)(H)(ii)(III) Unrelated debt-financed income
- § 860B(c)(1) Taxation of holders of regular interests
- § 860E(c)(2)(C) Treatment of income in excess of daily accruals on residual interests
- § 954(i)(4)(A)(i) Foreign base company income
- § 988(a)(3)(C) Treatment of certain foreign currency transactions
- § 1258(d)(2)(A) Recharacterization of gain from certain financial transactions
- § 1260(b)(3) Gains from constructive ownership transactions
- § 1273(b)(4)(B) Determination of amount of original issue discount
Show 7 more
- § 1274A(a) Special rules for certain transactions where stated principal amount does not exceed $2,800,000
- § 1275(b)(1) Other definitions and special rules
- § 1298(d)(2)(B)(ii) Special rules
- § 6621(b)(3) Determination of rate of interest
- § 7520(a)(2) Valuation tables
- § 7702(f)(11)(C) Life insurance contract defined
- § 7872(f)(2)(A) Treatment of loans with below-market interest rates
Cited in 50 regulations not issued under it
- § 1.163-7 Deduction for OID on certain debt instruments.
- § 1.168(j)-1T Questions and answers concerning tax-exempt entity leasing rules (temporary).
- § 1.263A-9 The avoided cost method.
- § 1.263A-15 Effective dates, transitional rules, and anti-abuse rule.
- § 1.280G-1 Golden parachute payments.
- § 1.382-12 Determination of adjusted Federal long-term rate.
- § 1.385-3 Certain distributions of debt instruments and similar transactions.
- § 1.385-4 Treatment of consolidated groups.
- § 1.453-11 Installment obligations received from a liquidating corporation.
- § 1.460-6 Look-back method.
- § 1.482-2 Determination of taxable income in specific situations.
- § 1.483-3 Test rate of interest applicable to a contract.
- § 1.483-4 Contingent payments.
- § 1.514(c)-2 Permitted allocations under section 514(c)(9)(E).
- § 1.597-3 Other rules.
- § 1.679-4 Exceptions to general rule.
- § 1.707-3 Disguised sales of property to partnership; general rules.
- § 1.707-6 Disguised sales of property by partnership to partner; general rules.
- § 1.752-2 Partner's share of recourse liabilities.
- § 1.860E-1 Treatment of taxable income of a residual interest holder in excess of daily accruals.
- § 1.860E-2 Tax on transfers of residual interests to certain organizations.
- § 1.861-9T Allocation and apportionment of interest expense (temporary).
- § 1.897-1 Taxation of foreign investment in United States real property interests, definition of terms.
- § 1.951-1 Amounts included in gross income of United States shareholders.
Show 26 more
- § 1.954-2 Foreign personal holding company income.
- § 1.988-2 Recognition and computation of exchange gain or loss.
- § 1.988-4 Source of gain or loss realized on a section 988 transaction.
- § 1.988-5 Section 988(d) hedging transactions.
- § 1.1001-3 Modifications of debt instruments.
- § 1.1012-1 Basis of property.
- § 1.1271-0 Original issue discount; effective date; table of contents.
- § 1.1273-2 Determination of issue price and issue date.
- § 1.1274A-1 Special rules for certain transactions where stated principal amount does not exceed $2,800,000.
- § 1.1275-2 Special rules relating to debt instruments.
- § 1.1275-4 Contingent payment debt instruments.
- § 1.1275-5 Variable rate debt instruments.
- § 1.1288-1 Adjustment of applicable Federal rate for tax-exempt obligations.
- § 1.1400Z2(d)-1 Qualified opportunity funds and qualified opportunity zone businesses.
- § 1.1502-13 Intercompany transactions.
- § 1.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
- § 1.7872-15 Split-dollar loans.
- § 1.7872-16 Loans to an exchange facilitator under § 1.468B-6.
- § 4.954-2 Foreign personal holding company income; taxable years beginning after December 31, 1986.
- § 20.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
- § 25.7520-1 Valuation of annuities, unitrust interests, interests for life or terms of years, and remainder or reversionary interests.
- § 31.3121(v)(2)-1 Treatment of amounts deferred under certain nonqualified deferred compensation plans.
- § 53.4958-7 Correction.
- § 53.4960-3 Determination of whether there is a parachute payment.
- § 53.4960-4 Liability for tax on excess remuneration and excess parachute payments.
- § 54.4980G-4 Calculating comparable contributions.
Amendment history
From the source credit and the official notes, newest first.
- Amended by Pub. L. 115–141Parts changed in 2018: (b)(3)(B)(i)
- Amended by Pub. L. 105–34Parts changed in 1997: (c)(3)(B)
- Amended by Pub. L. 104–188Parts changed in 1996: (b)(3)(B)(i)
- Amended by Pub. L. 101–239Parts changed in 1989: (b)(3)(B)(i)
- Amended by Pub. L. 99–514Parts changed in 1986: (c)(3)(A)
- Amended by Pub. L. 99–121Parts changed in 1985: (b)(2)(B) (c)(1)(A)(ii) (c)(2) (c)(3) (c)(4) (d)(1)(B) (d)(2) (e)
- Added by Pub. L. 98–369
Where it sits in the Code
- Subtitle A Income Taxes
- Chapter 1 NORMAL TAXES AND SURTAXES
- Subchapter P Capital Gains and Losses
- Part V SPECIAL RULES FOR BONDS AND OTHER DEBT INSTRUMENTS
- Subpart A Original Issue Discount
Nearby sections
- § 1271 Treatment of amounts received on retirement or sale or exchange of debt instruments
- § 1272 Current inclusion in income of original issue discount
- § 1273 Determination of amount of original issue discount
- § 1274 Determination of issue price in the case of certain debt instruments issued for property
- § 1274A Special rules for certain transactions where stated principal amount does not exceed $2,800,000
- § 1275 Other definitions and special rules
Official notes
Show the Law Revision Counsel's notes (amendments, effective dates)
Editorial Notes
Amendments
2018—Subsec. (b)(3)(B)(i). Pub. L. 115–141 substituted “section 6662(d)(2)(C)(ii)” for “section 6662(d)(2)(C)(iii)”.
1997—Subsec. (c)(3)(B). Pub. L. 105–34 substituted “section 121” for “section 1034”.
1996—Subsec. (b)(3)(B)(i). Pub. L. 104–188 substituted “section 6662(d)(2)(C)(iii)” for “section 6662(d)(2)(C)(ii)”.
1989—Subsec. (b)(3)(B)(i). Pub. L. 101–239 substituted “section 6662(d)(2)(C)(ii)” for “section 6661(b)(2)(C)(ii)”.
1986—Subsec. (c)(3)(A). Pub. L. 99–514 substituted “for $1,000,000 or less” for “for less than $1,000,000” in heading of subsec. (c)(4)(A) as so designated prior to its redesignation as subsec. (c)(3)(A) by Pub. L. 99–121, § 101(a)(1)(D), see 1985 Amendment note below.
1985—Subsec. (b)(2)(B). Pub. L. 99–121, § 101(a)(1)(A), struck out “120 percent of” after “rate equal to”.
Subsec. (c)(1)(A)(ii). Pub. L. 99–121, § 101(a)(1)(B), amended cl. (ii) generally, substituting “the imputed principal amount of such debt instrument determined under subsection (b)” for “the testing amount”.
Subsec. (c)(2). Pub. L. 99–121, § 101(a)(1)(C), substituted “the imputed principal amount of such debt instrument determined under subsection (b)” for “the testing amount”.
Subsec. (c)(3). Pub. L. 99–121, § 101(a)(1)(D), redesignated par. (4) as (3). Former par. (3), defining “testing amount”, was struck out.
Subsec. (c)(4). Pub. L. 99–121, § 102(b), added par. (4). Former par. (4) redesignated (3).
Subsec. (d)(1)(B) to (D). Pub. L. 99–121, § 101(b)(1), amended subpars. (B) to (D) generally, in subpar. (B) substituting provisions setting a monthly schedule for the determination of Federal rates for provisions which had formerly set a semi-annual schedule for the determination of such rates, in subpar. (C) substituting provisions setting a monthly schedule for the determination of Federal short-term, mid-term, and long-term rates based on the average market yield during any 1-month period ending in the month in which the determination is made for former provisions which had directed that the Federal rate determined under subpar. (A) apply during the appropriate 6-month period, and in subpar. (D) substituting provisions allowing a lower rate in certain cases for provisions relating to the setting of the Federal rate for any 6-month period.
Subsec. (d)(2). Pub. L. 99–121, § 101(b)(2), amended par. (2) generally. Prior to amendment, par. (2) read as follows: “In the case of any sale or exchange, the determination of the applicable Federal rate shall be made as of the first day on which there is a binding contract in writing for the sale or exchange.”
Subsec. (e). Pub. L. 99–121, § 101(c), added subsec. (e).
Statutory Notes and Related Subsidiaries
Effective Date of 1997 Amendment
Amendment by Pub. L. 105–34 applicable to sales and exchanges after May 6, 1997, with certain exceptions, see section 312(d) of Pub. L. 105–34, set out as a note under section 121 of this title.
Effective Date of 1989 Amendment
Amendment by Pub. L. 101–239 applicable to returns the due date for which (determined without regard to extensions) is after Dec. 31, 1989, see section 7721(d) of Pub. L. 101–239, set out as a note under section 461 of this title.
Effective Date of 1986 Amendment
Amendment by Pub. L. 99–514 effective, except as otherwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title.
Effective Date of 1985 Amendment
Pub. L. 99–121, title I, § 105(a), Oct. 11, 1985, 99 Stat. 510, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“(1) In general.— Except as provided in paragraph (2), the amendments made by sections 101 and 102 [enacting section 1274A and amending this section and sections 280G and 483 of this title] shall apply to sales and exchanges after June 30, 1985, in taxable years ending after such date. The amendment made by section 2 of Public Law 98–612 [amending section 44(b) of Pub. L. 98–369, set out as a note under section 1271 of this title] shall not apply to sales and exchanges after June 30, 1985, in taxable years ending after such date.“(2) Regulatory authority to establish lower rate.— Section 1274(d)(1)(D) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], as added by section 101(b), shall apply as if included in the amendments made by section 41 of the Tax Reform Act of 1984 [Pub. L. 98–369, see Effective Date note set out under section 1271 of this title].”
Effective Date
Section applicable to taxable years ending after July 18, 1984, and applicable to sales or exchanges after Dec. 31, 1984, but not applicable to any sale or exchange pursuant to a written contract which was binding on Mar. 1, 1984, and at all times thereafter before the sale or exchange, see section 44 of Pub. L. 98–369, set out as a note under section 1271 of this title.
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title.
Transitional Rule for Purposes of Imputed Interest Rules
Provisions respecting treatment of debt instruments received in exchange for property, relating to special rules for sales after Dec. 31, 1984, and before July 1, 1985, general rule for assumptions of loans, exception for assumptions of loans made on or before Oct. 15, 1984, and exception for assumptions of loans with respect to certain property, see section 44(b)(4)–(7) of Pub. L. 98–369, as amended, set out as an Effective Date note under section 1271 of this title.