Continuing Care Facility Loan Exception

§ 7872. Treatment of loans with below-market interest rates(a) Treatment of gift loans and demand loans(1) In generalFor purposes of this title, in the case of any below-market loan to which this section applies and which is a gift loan or a demand loan, the forgone interest shall be treated as—(A) transferred from the lender to the borrower, and (B) retransferred by the borrower to the lender as interest. (2) Time when transfers madeExcept as otherwise provided in regulations prescribed by the Secretary, any forgone interest attributable to periods during any calendar year shall be treated as transferred (and retransferred) under paragraph (1) on the last day of such calendar year. (b) Treatment of other below-market loans(1) In generalFor purposes of this title, in the case of any below-market loan to which this section applies and to which subsection (a)(1) does not apply, the lender shall be treated as having transferred on the date the loan was made (or, if later, on the first day on which this section applies to such loan), and the borrower shall be treated as having received on such date, cash in an amount equal to the excess of—(A) the amount loaned, over (B) the present value of all payments which are required to be made under the terms of the loan. (2) Obligation treated as having original issue discountFor purposes of this title—(A) In generalAny below-market loan to which paragraph (1) applies shall be treated as having original issue discount in an amount equal to the excess described in paragraph (1). (B) Amount in addition to other original issue discountAny original issue discount which a loan is treated as having by reason of subparagraph (A) shall be in addition to any other original issue discount on such loan (determined without regard to subparagraph (A)). (c) Below-market loans to which section applies(1) In generalExcept as otherwise provided in this subsection and subsection (g), this section shall apply to—(A) GiftsAny below-market loan which is a gift loan. (B) Compensation-related loansAny below-market loan directly or indirectly between—(i) an employer and an employee, or (ii) an independent contractor and a person for whom such independent contractor provides services. (C) Corporation-shareholder loansAny below-market loan directly or indirectly between a corporation and any shareholder of such corporation. (D) Tax avoidance loansAny below-market loan 1 of the principal purposes of the interest arrangements of which is the avoidance of any Federal tax. (E) Other below-market loansTo the extent provided in regulations, any below-market loan which is not described in subparagraph (A), (B), (C), or (F) if the interest arrangements of such loan have a significant effect on any Federal tax liability of the lender or the borrower. (F) Loans to qualified continuing care facilitiesAny loan to any qualified continuing care facility pursuant to a continuing care contract.