STAT. 505 Public Law 99-121 99th Congress An Act

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

IMPUTATION RATE FROM

120 TO 100

PERCENT;

ELIMINATION

SEPARATE TESTING RATE.—

(1)

AMENDMENTS OF SECTION

1274.— 98 Stat. 538.

(A) Subparagraph (B) of section 1274(b)(2) of the Internal

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".

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

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)

GENERAL.—Paragraph

(1) of section 1274(d) of such Code

Stat. 538.

(defining applicable Federal rate) is amended by striking out

USC 1274.

subparagraphs (B), (C), and (D) and inserting in lieu thereof the

following:

"(B)

DETERMINATION

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

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."

Stat.

538. (2)

RATE

APPLICABLE

TO ANY

SALE

EXCHANGE.—Paragraph

use

1274.

(2)

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

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

CASE

SALE-LEASEBACK.—

Stat.

538.

Section 1274 of such Code (relating to determination of issue price in

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)

GENERAL.—In

the case of any debt instrument to which

this subsection applies, the discount rate used under subsection

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,

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

CASE

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

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.—

use

1274A.

Stat. 553.

use

483.

Stat. 538.

use

1274.

Stat. 638.

use

48.

Prohibitions.

Stat. 538.

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,

505.

(b) EXCEPTION FOR

ASSUMPTIONS.—Subsection

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,

Stat.

553.

in determining whether this section or section 483 applies to

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)."

Stat.

553.

(1) Section 483 of such Code is amended by striking out

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

Stat. 540. personal use, see section

1275(b)."

St^?

58?'

^^^

Paragraph (4) of section 280G(d) of such Code is amended

26USe280G.

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".

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.

103.

RECOVERY PERIOD FOR

18-YEAR

REAL PROPERTY EXTENDED

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

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

Stat. 633.

cost recovery deduction).

use 57.

Stat. 633.

(D) Subparagraphs (A), (B), and (C) of section 1245(aX5)

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

Stat. 633.

percentage) is amended by striking out "18, 35, or 45" and

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

Stat. 632.

redesignating clause (iii) as clause (iv) and by inserting after

USe 168.

clause (ii) the following new clause:

"(iii)

BUILDINGS PLACED

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".

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

Stat.

633.

use

48.

use

47.

Stat.

633.

use

57.

Loans.

Prohibitions.

Stat.

553

use

483.

Stat.

538.

use

1274.

use

1274

note.

Prohibitions.

Stat.

3182.

Stat.

531.

use

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

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

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

STAT.

511

(A)

the

taxpayer

or a

qualified

person entered into

binding contract

purchase

construct such property

before May

9,1985,

(B) construction

such property was commenced

by or

for the taxpayer

or a

qualified person before May 9, 1985.

For purposes

this paragraph,

the

term "qualified person"

means

any

person whose rights

such

contract

such

property

are

transferred

to the

taxpayer,

but

only

such

property

is not

placed

service before such rights

are

transferred

the taxpayer.

(3)

SPECIAL RULE FOR

COMPONENTS.—For

purposes of applying

section 168(fXl)(B)

of the

Internal Revenue Code

1954

(as

amended

section 103)

components placed

service after

December 31, 1986, property

which paragraph

(2) of

this

subsection applies shall

treated

placed

service

by the

taxpayer before May

9,1985.

(4) TECHNICAL

CORRECTION.—The

amendment made

para-

graph

(6) of

section 103(b) shall apply

as if

included

in the

amendments made

section 111

of the Tax

Reform

Act of

1984. 98

Stat.

631.

(5)

SPECIAL RULE

FOR

LEASING

QUAUFIED

REHABILITATED

BUILDINGS.—The

amendment made

paragraph (5)

section

103(b)

section 48(g)(2)(BXv)

the Internal Revenue Code

1954 shall not apply

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

the Internal Revenue Code

1954 (relating

treatment

loans with

below-market

interest

Stat. 699.

rates)

amended

redesignating subsection (g)

subsection (h)

26 use

7872.

and

inserting after subsection

(f) the

following new subsection:

"(g)

EXCEPTION

FOR

CERTAIN LOANS

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

any loan

which such paragraph applies (determined without regard

this paragraph), when added

to the

aggregate outstanding

amount

all other previous loans between

the

lender (or

the

lender's spouse)

and any

qualified continuing care facility

which paragraph (1) applies, does not exceed $90,000.

"(3) CONTINUING CARE

CONTRACT.—For

purposes

this sec-

tion,

the

term

'continuing

care contract' means

written con-

tract between

individual

and a

qualified continuing care

facility under

which—

"(A)

the

individual

individual's spouse

may use a

qualified continuing care facility

for

their life

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

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.—

Stat.

699.

Paragraph (1) of section 7872(c) of such Code (relating to

below-

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."

(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)

such Code

Stat. 699.

amended

striking out

"or

(C)" and inserting

Ueu

thereof

USC 7872.

"(C),

(F)".

SEC. 202.

TIME FOR DETERMINING RATE APPLICABLE TO EMPLOYEE

RELOCATION

LOANS.

Subsection (f) of section 7872 of the Internal Revenue Code of 1954

(relating

treatment

loans with

below-market

interest rates)

amended by adding

the end thereof the following new paragraph:

"(11) TIME FOR DETERMINING RATE APPLICABLE

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

purchase

principal residence (within

the meaning

section 1034),

the

determination

of the

applicable Federal rate shall

made

as of

the date

the

written contract

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

connection with

the

commencement of work by an employee

or a

change

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

section 7872 of the Internal

Revenue Code

1954, payments made

to a

specified independent

Stat. 699.

living facility for the elderly by

payor who is an individual

least

USC

7872.

65 years old shall not be treated as loans

provided—

(1) the independent living facility is designed and operated

meet some substantial combination

of the

health, physical,

emotional, recreational, social, religious

and

similar needs

persons over the age of

65;

(2)

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

the payment

equal

to the

fair market

value

the right

occupy

the

independent living quarters;

(4) upon leaving the independent living facility, the payor

entitled to receive

payment equal to

least 50 percent of the

fair market value

that time

of the

right

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

new occupant for such quarters; and

(5) the excess, if any, of the fair market value of the independ-

ent living quarters

the time the payor leaves such quarters

(less

reasonable amount

cover costs) over the amount paid

the

payor

used

by an

organization described

section

501(c)(3) of such Code to provide housing and related services for 26 USC

501.

needy elderly persons.

Ot))

SPECIFIED INDEPENDENT LIVING FACILITY FOR THE ELDERLY.—

For purposes of this

section—

Missouri.

(1)

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

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

use

501.

in section 501(c)(3) of the Internal Revenue Code of 1954.

SEC.

204. EFFECTIVE

DATES.

use

7872 (a) SECTION 201.—

note.

(1)

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).

use 7872

(b) SECTION

202.—The

amendment made by section 202 shall apply

note.

contracts entered into after June

30,1985,

in taxable years ending

after such

date,

203.—The

provisions of section 203 shall apply as if

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.

("'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.