A bill to amend the Internal Revenue Code of 1954 to simplify the imputed interest rules of sections 1274 and 483, and for other purposes.
PL 99-121 (H.R.2475), enacted 10/11/1985

PUBLIC LAW 99-121—OCT. 11, 1985 
99 STAT. 505 
Public Law 99-121 
99th Congress 
An Act 
To amend the Internal Revenue Code of 1954 to simplify the imputed interest rules 
Oct. 11, 1985 
of sections 1274 and 483, and for other purposes. 
[H.R. 2475] 
Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled, 
TITLE I—AMENDMENTS TO IMPUTED INTEREST RULES 
Real property. 
SECTION 101. SIMPLIFICATION OF GENERAL IMPUTED INTEREST RULES. 
(a) REDUCTION OF IMPUTATION RATE FROM 120 TO 100 PERCENT; 
ELIMINATION OF SEPARATE TESTING RATE.— 
(1) AMENDMENTS OF SECTION 1274.— 
98 Stat. 538. 
(A) Subparagraph (B) of section 1274(b)(2) of the Internal 
26 USC 1274. 
Revenue Code of 1954 (defining imputed principal amount) 
is amended by striking out "120 percent of". 
(B) Clause (ii) of section 1274(cXlXA) of such Code is 
amended to read as follows: 
"(ii) in any other case, the imputed principal amount of 
such debt instrument determined under subsection (b), 
and". 
(C) Paragraph (2) of section 1274(c) of such Code is 
amended by striking out "the testing amount" and insert-
ing in lieu thereof "the imputed principal amount of such 
debt instrument determined under subsection (b)". 
(D) Subsection (c) of section 1274 of such Code is amended 
by striking out paragraph (3) and by redesignating para-
graph (4) as paragraph (3). 
(2) AMENDMENTS OF SECTION 483.— 
98 Stat. 553. 
(A) The last sentence of section 483(b) of such Code 
26 use 483. 
(defining total unstated interest) is amended by striking out 
"120 percent of. 
(B) Subparagraph (B) of section 483(cXl) of such Code is 
amended to read as follows: 
"(B) under which there is total unstated interest." 
(b) INTEREST RATES REDETERMINED EACH MONTH.— 
(1) IN GENERAL.—Paragraph (1) of section 1274(d) of such Code 
98 Stat. 538. 
(defining applicable Federal rate) is amended by striking out 
26 USC 1274. 
subparagraphs (B), (C), and (D) and inserting in lieu thereof the 
following: 
"(B) DETERMINATION OF RATES.—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. 
"(C) FEDERAL RATE FOR ANY CALENDAR MONTH.—For pur-
poses of this paragraph— 
"(i) FEDERAL SHORT-TERM RATE.—The Federal short-
term rate shall be the rate determined by the Secretary 
based on the average market yield (during any 1-month 
99 STAT. 506 
PUBLIC LAW 99-121—OCT. 11, 1985 
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. 
"(ii) FEDERAL MID-TERM AND LONG-TERM RATES.—The 
Federal mid-term and long-term rate shall be deter-
mined in accordance with the principles of clause (i). 
"(D) LOWER RATE PERMITTED IN CERTAIN CASES.—The Sec-
retary 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." 
98 Stat. 538. 
(2) R A T E APPLICABLE TO ANY SALE OR EXCHANGE.—Paragraph 
26 use 1274. 
(2) of section 1274(d) of such Code (relating to rate applicable to 
any sale or exchange) is amended to read as follows: 
"(2) 
LOWEST 3-MONTH RATE APPLICABLE TO ANY SALE OR 
EXCHANGE.— 
"(A) IN GENERAL.—In the case of any sale or exchange, 
the applicable Federal rate shall be the lowest 3-month 
rate. 
Contracts. 
"(B) LowEST 3-MONTH RATE.—For purposes of Subpara-
graph (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." 
(c) RATE INCREASED TO 110 PERCENT IN CASE OF SALE-LEASEBACK.— 
98 Stat. 538. 
Section 1274 of such Code (relating to determination of issue price in 
26 use 1274. 
the case of certain debt instruments issued for property) is amended 
by adding at the end thereof the following new subsection: 
"(e) 110 PERCENT RATE WHERE SALE-LEASEBACK INVOLVED.— 
"(1) IN GENERAL.—In the case of any debt instrument to which 
this subsection applies, the discount rate used under subsection 
98 Stat. 553. 
(b)(2)(B) or section 483(b) shall be 110 percent of the applicable 
26 use 483. 
Federal rate, compounded semiannually. 
Prohibitions. 
"(2) Lower discount rates shall not apply.—Section 1274A 
Post, p. 507. 
shall not apply to any debt instrument to which this subsection 
applies. 
"(3) Debt instruments to which this subsection applies.—This 
subsection shall apply to any debt instrument given in consider-
ation 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." 
SEC. 102. LOWER DISCOUNT RATE IN CASE OF CERTAIN SALES WHERE 
STATED PRINCIPAL AMOUNT DOES NOT EXCEED $2,800,000. 
(a) GENERAL RULE.—Subpart A of part V of subchapter P of 
chapter 1 of the Internal Revenue Code of 1954 (relating to original 
issue discount) is amended by inserting after section 1274 the follow-
ing new section: 
PUBLIC LAW 99-121-OCT. 11, 1985 
99 STAT. 507 
"SEC. 
1274A. SPECIAL RULES FOR CERTAIN TRANSACTIONS WHERE 
STATED PRINCIPAL AMOUNT DOES NOT EXCEED $2,800,000. 
"(a) LOWER DISCOUNT RATE.—In the case of any qualified debt 
instrument, the discount rate used for purposes of sections 483 and 
1274 shall not exceed 9 percent, compounded semiannually. 
"(b) QUALIFIED DEBT INSTRUMENT DEFINED.—For purposes of this 
section, the term 'qualified debt instrument' means any debt in-
strument given in consideration for the sale or exchange of property 
(other than new section 38 property within the meaning of section 
48(b)) if the stated principal amount of such instrument does not 
exceed $2,800,000. 
"(c) ELECTION TO USE CASH METHOD WHERE STATED PRINCIPAL 
AMOUNT DOES NOT EXCEED $2,000,000.— 
"(1) IN GENERAL.—In the case of any cash method debt 
instrument— 
"(A) section 1274 shall not apply, and 
"(B) interest on such debt instument shall be taken into 
account by both the borrower and the lender under the cash 
receipts and disbursements method of accounting. 
"(2) CASH METHOD DEBT INSTRUMENT.—For purposes of para-
graph (1), the term 'cash method debt instrument' means any 
qualified debt instrument if— 
"(A) the stated principal amount does not exceed 
$2,000,000, 
"(B) the lender does not use an accrual method of 
accounting and is not a dealer with respect to the property 
sold or exchanged, 
"(C) section 1274 would have applied to such instrument 
but for an election under this subsection, and 
"(D) an election under this subsection is jointly made with 
respect to such debt instrument by the borrower and 
lender. 
"(3) SUCCESSORS BOUND BY ELECTION.— 
"(A) IN GENERAL.—Except as provided in subparagraph 
(B), paragraph (1) shall apply to any successor to the 
borrower or lender with respect to a cash method debt 
instrument. 
"(B) 
EXCEPTION WHERE LENDER TRANSFERS DEBT IN-
STRUMENT TO ACCRUAL METHOD TAXPAYER.—If the lender (or 
any successor) transfers any cash method debt instrument 
to a taxpayer who uses an accrual method of accounting, 
this paragraph shall not apply with respect to such in-
strument for periods after such transfer. 
"(4) FAIR MARKET VALUE RULE IN POTENTIALLY ABUSIVE SITUA-
TIONS.—In the case of any cash method debt instrument, section 
483 shall be applied as if it included provisions similar to the 
provisions of section 12740t))(3). 
"(d) OTHER SPECIAL RULES.— 
"(1) AGGREGATION RULES.—For purposes of this section— 
"(A) all sales or exchanges which are part of the same 
transaction (or a series of related transactions) shall be 
treated £is 1 sale or exchange, and 
"(B) all debt instruments arising from the same trans-
action (or a series of related transactions) shall be treated 
as 1 debt instrument. 
"(2) INFLATION ADJUSTMENTS.— 
26 use 1274A. 
98 Stat. 553. 
26 use 483. 
98 Stat. 538. 
26 use 1274. 
98 Stat. 638. 
26 u s e 48. 
Prohibitions. 
98 Stat. 538. 
26 use 1274. 
99 STAT. 508 
PUBLIC LAW 99-121—OCT. 11, 1985 
"(A) IN GENERAL.—In the case of any debt instrument 
arising out of a sale or exchange during any calendar year 
after 1989, each dollar amount contained in the preceding 
provisions of this section shall be increased by the inflation 
adjustment for such calendar year. Any increase under the 
preceding sentence shall be rounded to the nearest multiple 
of $100 (or, if such increase is a multiple of $50, such 
increase shall be increased to the nearest multiple of $100). 
"(B) INFLATION ADJUSTMENT.—For purposes of subpara-
graph (A), the inflation adjustment for any calendar year is 
the percentage (if any) by which— 
"(i) the CPI for the preceding calendar year exceeds 
"(ii) the CPI for calendar year 1988. 
For purposes of the preceding sentence, the CPI for any 
calendar year is the average of the Consumer Price Index 
as of the close of the 12-month period ending on September 
30 of such calendar year. 
"(e) REGULATIONS.—The Secretary shall prescribe such regula-
tions as may be necessary to carry out the purposes of this subsec-
tion, including— 
"(1) regulations coordinating the provisions of this section 
with other provisions of this title, 
"(2) regulations necessary to prevent the avoidance of tax 
through the abuse of the provisions of subsection (c), and 
"(3) regulations relating to the treatment of transfers of cash 
method debt instruments." 
Ante, p. 505. 
(b) EXCEPTION FOR ASSUMPTIONS.—Subsection (c) of section 1274 of 
26 use 1274. 
such Code is amended by adding at the end thereof the following 
new paragraph: 
"(4) EXCEPTION FOR ASSUMPTIONS.—If any person— 
"(A) in connection with the sale or exchange of property, 
assumes any debt instrument, or 
"(B) acquires 
any 
property 
subject 
to 
any 
debt 
instrument, 
98 Stat. 553. 
in determining whether this section or section 483 applies to 
26 use 483. 
such debt instrument, such assumption (or such acquisition) 
shall not be taken into account unless the terms and conditions 
of such debt instrument are modified (or the nature of the 
transaction is changed) in connection with the assumption (or 
acquisition)." 
(c) TECHNICAL AMENDMENTS.— 
98 Stat. 553. 
(1) Section 483 of such Code is amended by striking out 
26 use 483. 
subsection (e) and by redesignating subsections (f), (g), and (h) as 
subsections (e), (f), and (g), respectively. 
(2) Paragraph (1) of section 483(e) of such Code (as redesig-
nated by paragraph (D) is amended by striking out "7 percent" 
and inserting in lieu thereof "6 percent". 
(3) Subsection (g) of section 483 of such Code (as redesignated 
by paragraph (1)) is amended to read as follows: 
"(g) CROSS REFERENCES.— 
Supra. 
"(1) For treatment of assumptions, see section 1274(c)(4). 
"(2) For special rules for certain transactions where stated principal 
Ante, p. 507. 
amount does not exceed $2,800,000, see section 1274A. 
"(3) For special rules in case of the borrower under certain loans for 
98 Stat. 540. 
personal use, see section 1275(b)." 
98 St^? 58?' 
^^^ Paragraph (4) of section 280G(d) of such Code is amended 
26USe280G. 
by striking out "in accordance with section 1274(b)(2)" and 
PUBLIC LAW 99-121—OCT. 11, 1985 
99 STAT. 509 
inserting in lieu thereof "by using a discount rate equal to 120 
percent of the applicable Federal rate (determined under sec-
tion 1274(d)), compounded semiannually". 
98 Stat. 538. 
(d) CLERICAL AMENDMENT.—The table of sections for subpart A of 
26 use 1274. 
part V of subchapter P of chapter 1 of such Code is amended by 
inserting after the item relating to section 1274 the following new 
item: 
"Sec. 1274A. Special rules for certain transactions where stated principal 
amount does not exceed $2,800,000." 
SEC. 
1
0
3
. 
RECOVERY 
PERIOD 
FOR 
18-YEAR 
REAL 
PROPERTY 
EXTENDED 
TO 
1
9 
YEARS. 
(a) IN GENERAL.—Clause (i) of section 16803)(2)(A) of the Internal 
Revenue Code of 1954 (relating to amount of deduction for 18-year 
98 Stat. 631. 
real property) is amended by striking out "18-year recovery period" 
26 use 168. 
and inserting in lieu thereof "19-year recovery period". 
(b) TECHNICAL AMENDMENTS.— 
(1) The following provisions of the Internal Revenue Code of 
1954 are amended by striking out "18-year real property" each 
place it appears in the text and headings thereof and inserting 
in lieu thereof "19-year real property": 
(A) Section 168 (relating to accelerated cost recovery 
system). 
(B) Section 57(aX12) (relating to preference for accelerated 
98 Stat. 633. 
cost recovery deduction). 
26 use 57. 
(C) Section 312(kX3XA) (relating to earnings and profits). 
98 Stat. 633. 
(D) Subparagraphs (A), (B), and (C) of section 1245(aX5) 
26 use 312. 
(relating to gain from dispositions of certain depreciable 
26 use 1245 
property). 
(2) The table contained in subparagraph (A) of section 
168(bX3) of such Code (relating to election of different recovery 
98 Stat. 633. 
percentage) is amended by striking out "18, 35, or 45" and 
26 use 168. 
inserting in lieu thereof "19, 35, or 45 years". 
(3)(A) Subparagraph (B) of section 168(fKl) of such Code (relat-
ing to components of section 1250 class property) is amended by 
98 Stat. 632. 
redesignating clause (iii) as clause (iv) and by inserting after 
26 USe 168. 
clause (ii) the following new clause: 
"(iii) BUILDINGS PLACED IN SERVICE BEFORE MAY 9, 
1985.—In the case of any building placed in service by 
the taxpayer before May 9, 1985, for purposes of apply-
ing subparagraph (A) to components of such buildings 
placed in service after May 8, 1985, the deduction 
allowable under subsection (a) with respect to such 
components shall be computed in the same manner as 
the deduction allowable with respect to the first compo-
nent placed in service after May 8,1985." 
(B) Clause (ii) of section 168(f)(lXB) of such Code is amended 
by striking out "March 15, 1984, the" and inserting in lieu 
thereof "March 15,1984, and before May, 9,1985, the". 
(C) Clause (iv) of section 168(f)(lXB) of such Code, as redesig-
nated by subparagraph (A), is amended by striking out "or (ii)" 
and inserting in lieu thereof ", (ii), or (iii)". 
(4) Clause (ii) of section 168(f)(12XB) of such Code (relating to 
limitations for property financed with tax-exempt bonds) is 
amended— 
99 STAT. 510 
PUBLIC LAW 99-121—OCT. 11, 1985 
98 Stat. 633. 
26 u s e 48. 
26 u s e 47. 
98 Stat. 633. 
26 u s e 57. 
Loans. 
Prohibitions. 
98 Stat. 553 
26 u s e 483. 
98 Stat. 538. 
26 u s e 1274. 
26 u s e 1274 
note. 
Prohibitions. 
98 Stat. 3182. 
98 Stat. 531. 
26 u s e 168 note. 
Prohibitions. 
Contracts. 
(A) by striking out "15-year real property" each place it 
appears in the heading and the text and inserting in lieu 
thereof "19-year real property", and 
(B) by striking out "15 years" and inserting in lieu 
thereof "19 years". 
(5) Paragraph (2) of section 48(g) of such Code (relating to 
special rules for qualified rehabilitated buildings) is amended by 
striking out "18" in subparagraphs (AXi) and (BXv) thereof and 
inserting in lieu thereof "19". 
(6) The table contained in subparagraph (B) of section 47(aX5) 
of such Code (relating to special rules for recovery property) is 
amended by striking out "For 15-year, 10-year, and 5-year prop-
erty" and inserting in lieu thereof " For property other than 
3-year property". 
(7) Clause (i) of section 57(aX12XB) of such Code (relating to 
real property and low-income housing) is Amended by striWng 
out "18 years" and inserting in lieu thereof "19 years". 
SEC. 104. SPECIAL RULE FOR CERTAIN WORKOUTS. 
(a) GENERAL RULE.—Sections 483 and 1274 of the Internal Reve-
nue Code of 1954 shall not apply to the issuance or modification of 
any written indebtedness if— 
(1) such issuance or modification is in connection with a 
workout of a specified MLC loan which (as of May 31,1985) was 
substantially in arrears, and 
(2) the aggregate principal amount of indebtedness resulting 
from such workout does not exceed the sum (as of the time of 
the workout) of the outstanding principal amount of the speci-
fied MLC loan and any arrearages on such loan. 
(b) SPECIFIED MLC LOAN.—For purposes of subsection (a), the term 
"specified MLC loan" means any loan which, in a submission dated 
June 17, 1985, on behalf of the New York State Mortgage Loan 
Enforcement and Administration Corporation, had one of the follow-
ing loan numbers: 001, 005, 007, 012, 025, 038, 041, 042, 043, 049, 053, 
064, 068, 090,141,180, or 188. 
SEC. 105. EFFECTIVE DATES. 
(a) SECTIONS 101 AND 102.— 
(1) IN GENERAL.—Except as provided in paragraph (2), the 
amendments made by sections 101 and 102 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 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.—Sec-
tion 1274(dXlXD) of the Internal Revenue Code of 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. 
(b) SECTION 103.— 
(1) IN GENERAL.—Except as otherwise provided in this subsec-
tion, the amendments made by section 103 shall apply with 
respect to property placed in service by the taxpayer after 
May 8, 1985. 
(2) EXCEPTION.—The amendments made by section 103 shall 
not apply to property placed in service by the taxpayer before 
January 1,1987, if— 
PUBLIC LAW 99-121—OCT. 11, 1985 
99 STAT. 511 
(A) the taxpayer or a qualified person entered into a 
binding contract to purchase or construct such property 
before May 9,1985, or 
(B) construction of such property was commenced by or 
for the taxpayer or a qualified person before May 9, 1985. 
For purposes of this paragraph, the term "qualified person" 
means any person whose rights in such a contract or such 
property are transferred to the taxpayer, but only if such 
property is not placed in service before such rights are 
transferred to the taxpayer. 
(3) SPECIAL RULE FOR COMPONENTS.—For purposes of applying 
section 168(fXl)(B) of the Internal Revenue Code of 1954 (as 
amended by section 103) to components placed in service after 
December 31, 1986, property to which paragraph (2) of this 
subsection applies shall be treated as placed in service by the 
taxpayer before May 9,1985. 
(4) TECHNICAL CORRECTION.—The amendment made by para-
graph (6) of section 103(b) shall apply as if included in the 
amendments made by section 111 of the Tax Reform Act of 
1984. 
98 Stat. 631. 
(5) SPECIAL RULE FOR LEASING OF QUAUFIED REHABILITATED 
BUILDINGS.—The amendment made by paragraph (5) of section 
103(b) to section 48(g)(2)(BXv) of the Internal Revenue Code of 
1954 shall not apply to leases entered into before May 22, 1985, 
but only if the lessee signed the lease before May 17, 1985. 
TITLE II—AMENDMENTS TO BELOW-MARKET INTEREST 
RULES 
SEC. 201. CERTAIN LOANS TO QUALIFIED CONTINUING CARE FACILITIES 
EXEMPT FROM BELOW-MARKET INTEREST RATE RULES. 
(a) IN GENERAL.—Section 7872 of the Internal Revenue Code of 
1954 (relating to treatment of loans with below-market interest 
98 Stat. 699. 
rates) is amended by redesignating subsection (g) as subsection (h) 
26 use 7872. 
and by inserting after subsection (f) the following new subsection: 
"(g) EXCEPTION FOR CERTAIN LOANS TO QUAUFIED CONTINUING 
CARE FACIUTIES.— 
"(1) IN GENERAL.—This section shall not apply for any cal- 
Contracts. 
endar year to any below-market loan made by a lender to a 
qualified continuing care facility pursuant to a continuing care 
contract if the lender (or the lender's spouse) attains age 65 
before the close of such year. 
"(2) $90,000 LIMIT.—Paragraph (1) shall apply only to the 
extent that the aggregate outstanding amount of any loan to 
which such paragraph applies (determined without regard to 
this paragraph), when added to the aggregate outstanding 
amount of all other previous loans between the lender (or the 
lender's spouse) and any qualified continuing care facility to 
which paragraph (1) applies, does not exceed $90,000. 
"(3) CONTINUING CARE CONTRACT.—For purposes of this sec-
tion, the term 'continuing care contract' means a written con-
tract between an individual and a qualified continuing care 
facility under which— 
"(A) the individual or individual's spouse may use a 
qualified continuing care facility for their life or lives, 
"(B) the individual or individual's spouse— 
"(i) will first— 
99 STAT. 512 
PUBLIC LAW 99-121—OCT. 11, 1985 
"(I) reside in a separate, independent living unit 
with additional facilities outside such unit for the 
providing of meals and other personal care, and 
"(ID not require long-term nursing care, and 
"(ii) then will be provided long-term and skilled nurs-
ing care as the health of such individual or individual's 
spouse requires, and 
"(C) no additional substantial payment is required if such 
individual or individual's spouse requires increased per-
sonal care services or long-term and skilled nursing care. 
"(4) QUAUFIED CONTINUING CARE FACIUTY.— 
"(A) IN GENERAL.—For purposes of this section, the 
term 'qualified continuing care facility' means 1 or more 
facilities— 
"(i) which are designed to provide services under 
continuing care contracts, and 
"(ii) substantially all of the residents of which are 
covered by continuing care contracts. 
"(B) SUBSTANTIALLY ALL FACILITIES MUST BE OWNED OR 
OPERATED B
Y BORROWER.—A facility shall not be treated as a 
qualified continuing care facility unless substantially all 
facilities which are used to provide services which are 
required to be provided under a continuing care contract 
are owned or operated by the borrower. 
"(C) NURSING HOMES EXCLUDED.—The term 'qualified 
continuing care facility' shall not include any facility which 
is of a type which is traditionally considered a nursing 
home. 
"(5) ADJUSTMENT OF LIMIT FOR INFLATION.— 
"(A) IN GENERAL.—In the case of any loan made during 
any calendar year after 1986 to which paragraph (1) applies, 
the dollar amount in paragraph (2) shall be increased by the 
inflation adjustment for such calendar year. Any increase 
under the preceding sentence shall be rounded to the near-
est multiple of $100 (or, if such increase is a multiple of $50, 
such increase shall be increased to the nearest multiple of 
$100). 
"(B) INFLATION ADJUSTMENT.—For purposes of subpara-
graph (A), the inflation adjustment for any calendar year is 
the percentage (if any) by which— 
"(i) the CPI for the preceding calendar year exceeds 
"(ii) the CPI for calendar year 1985. 
For purposes of the preceding sentence, the CPI for any 
calendar year is the average of the Consumer Price Index as 
of the close of the 12-month period ending on September 30 
of such calendar year." 
(b) CLARIFICATION OF APPLICATION OF BELOW-MARKET INTEREST 
RATE RULES TO LOANS TO QUAUFIED CONTINUING CARE FACILITIES.— 
98 Stat. 699. 
Paragraph (1) of section 7872(c) of such Code (relating to below-
26 use 7872. 
market loans to which section applies) is amended by adding at the 
end thereof the following new subparagraph: 
"(F) LOANS TO QUALIFIED CONTINUING CARE FACIUTIES.— 
Any loan to any qualified continuing care facility pursuant 
to a continuing care contract." 
(c) CONFORMING AMENDMENTS.— 
(1) Paragraph (1) of section 7872(c) of such Code is amended by 
inserting "and subsection (g)" after "subsection". 
PUBLIC LAW 99-121—OCT. 11, 1985 
99 STAT. 513 
(2) Subparagraph (E) of section 7872(cXl) of such Code is 
98 Stat. 699. 
amended by striking out "or (C)" and inserting in Ueu thereof 
26 USC 7872. 
"(C), or (F)". 
SEC. 2
0
2
. 
TIME 
FOR DETERMINING RATE 
APPLICABLE 
TO EMPLOYEE 
RELOCATION 
LOANS. 
Subsection (f) of section 7872 of the Internal Revenue Code of 1954 
(relating to treatment of loans with below-market interest rates) is 
amended by adding at the end thereof the following new paragraph: 
"(11) TIME FOR DETERMINING RATE APPLICABLE TO EMPLOYEE 
RELOCATION LOANS.— 
"(A) IN GENERAL.—In the case of any term loan made by 
an employer to an employee the proceeds of which are used 
by the employee to purchase a principal residence (within 
the meaning of section 1034), the determination of the 
applicable Federal rate shall be made as of the date the 
written contract to purchase such residence was entered 
into. 
"(B) PARAGRAPH ONLY TO APPLY TO CASES TO WHICH SEC-
TION 217 APPLIES.—Subparagraph (A) shall only apply to the 
26 USC 217. 
purchase of a principal residence in connection with the 
commencement of work by an employee or a change in the 
principal place of work of an employee to which section 217 
applies." 
SEC. 203. SECTION 7872 OF THE INTERNAL REVENUE CODE SHALL NOT 
APPLY TO NON-LOAN PAYMENTS TO CERTAIN RESIDENTIAL 
HOUSING FACILITIES FOR THE ELDERLY. 
(a) GENERAL RULE.—For purposes of section 7872 of the Internal 
Revenue Code of 1954, payments made to a specified independent 
98 Stat. 699. 
living facility for the elderly by a payor who is an individual at least 
26 USC 7872. 
65 years old shall not be treated as loans provided— 
(1) the independent living facility is designed and operated to 
meet some substantial combination of the health, physical, 
emotional, recreational, social, religious and similar needs of 
persons over the age of 65; 
(2) in exchange for the payment, the payor obtains the right 
to occupy (or equivalent contractual right) independent living 
quarters located in the independent living facility; 
(3) the amount of the payment is equal to the fair market 
value of the right to occupy the independent living quarters; 
(4) upon leaving the independent living facility, the payor is 
entitled to receive a payment equal to at least 50 percent of the 
fair market value at that time of the right to occupy the 
independent living quarters, the timing of which payment may 
be contingent on the time when the independent living facility 
is able to locate a new occupant for such quarters; and 
(5) the excess, if any, of the fair market value of the independ-
ent living quarters at the time the payor leaves such quarters 
(less a reasonable amount to cover costs) over the amount paid 
to the payor is used by an organization described in section 
501(c)(3) of such Code to provide housing and related services for 
26 USC 501. 
needy elderly persons. 
O
t
)
) SPECIFIED INDEPENDENT LIVING FACILITY FOR THE ELDERLY.— 
For purposes of this section— 
Missouri. 
(1) IN GENERAL.—The term "specified independent living facil-
ity for the elderly" means— 
99 STAT. 514 
PUBLIC LAW 99-121—OCT. 11, 1985 
(A) the Our Lady of Life Apartments owned by a Missouri 
not-for-profit corporation with the same name, 
(B) the Laclede Oaks Manor owned by the Lutheran 
Health Care Association of St. Louis, Missouri, and 
(C) the Luther Center Northeast owned by the Lutheran 
Altenheim Society of Missouri. 
(2) REQUIREMENTS.—A facility shall not be considered to be a 
specified independent living facility for the elderly— 
(A) if it is located at any site other than the site which it 
occupied (or was in the process of occupying through 
construction) on the date of the enactment of this Act, or 
(B) if its ownership is transferred after such date of 
enactment to a person other than an organization described 
26 use 501. 
in section 501(c)(3) of the Internal Revenue Code of 1954. 
SEC. 204. EFFECTIVE DATES. 
26 u s e 7872 
(a) SECTION 201.— 
note. 
(1) IN GENERAL.—The amendments made by section 201 shall 
apply with respect to loans made after the date of enactment of 
this Act. 
(2) SECTION 7872 NOT TO APPLY TO CERTAIN LOANS.—Section 
Contracts. 
7872 of the Internal Revenue Code of 1954 shall not apply to 
26 use 7872 
loans made on or before the date of the enactment of this Act to 
any qualified continuing care facility pursuant to a continuing 
care contract. For purposes of this paragraph, the terms "quali-
fied continuing care facility" and "continuing care contract" 
have the meanings given such terms by section 7872(g) of such 
Code (as added by section 201). 
26 use 7872 
(b) SECTION 202.—The amendment made by section 202 shall apply 
note. 
to contracts entered into after June 30,1985, in taxable years ending 
after such date, 
(c) SECTION 203.—The provisions of section 203 shall apply as if 
98 Stat. 699. 
included in section 172(a) of the Tax Reform Act of 1984. 
Approved October 11, 1985. 
LEGISLATIVE HISTORY—H.R. 2475: 
HOUSE REPORTS: No. 99-87 (Comm. on Ways and Means) and No. 99-250 (Comm. of 
("'on TGT*(*n csl 
SENATE REPORT No. 99-83 (Comm. on Finance). 
CONGRESSIONAL RECORD, Vol. 131 (1985): 
May 21, considered and passed House. 
June 26, considered and passed Senate, amended. 
Aug. 1, House agreed to conference report. 
Oct. 1, Senate agreed to conference report.