deferred payment obligation
(1) Limitation on interest accrual for purposes of income taxes where loans do not exceed $100,000 (A) In general For purposes of subtitle A, in the case of a gift loan directly between individuals, the amount treated as retransferred by the borrower to the lender as of the close of any year shall not exceed the borrower’s net investment income for such year. (B) Limitation not to apply where 1 of principal purposes is tax avoidance Subparagraph (A) shall not apply to any loan the interest arrangements of which have as 1 of their principal purposes the avoidance of any Federal tax. (C) Special rule where more than 1 gift loan outstanding For purposes of subparagraph (A), in any case in which a borrower has outstanding more than 1 gift loan, the net investment income of such borrower shall be allocated among such loans in proportion to the respective amounts which would be treated as retransferred by the borrower without regard to this paragraph. (D) Limitation not to apply where aggregate amount of loans exceed $100,000 This paragraph shall not apply to any loan made by a lender to a borrower for any day on which the aggregate outstanding amount of loans between the borrower and lender exceeds $100,000. (E) Net investment income For purposes of this paragraph— (i) In general The term “net investment income” has the meaning given such term by section 163(d)(4). (ii) De minimis rule If the net investment income of any borrower for any year does not exceed $1,000, the net investment income of such borrower for such year shall be treated as zero. (iii) Additional amounts treated as interest In determining the net investment income of a person for any year, any amount which would be included in the gross income of such person for such year by reason of section 1272 if such section applied to all deferred payment obligations shall be treated as interest received by such person for such year. (iv) Deferred payment obligations The term “deferred payment obligation” includes any market discount bond, short-term obligation, United States savings bond, annuity, or similar obligation.