Section 1274.—Determi- nation of Issue Price in the Case of Certain Debt Instru- ments…

26 CFR 1.1274A–1: Special rules for certain trans- actions where stated principal amount does not ex- ceed $2,800,000.

As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instruments” have dollar ceilings on the stated principal amount. The limits to the stated principal amount are adjusted for inflation for sales or exchanges occurring in the 2006 calendar year. See Rev. Rul. 2005-76, page 1072.

2005–49 I.R.B. 1070 December 5, 2005

low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. Finally, Table 6 contains the 2006 interest rate for sections 846 and 807.

(Also Sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for December 2005.

Rev. Rul. 2005–77

This revenue ruling provides various prescribed rates for federal income tax

purposes for December 2005 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the

REV. RUL. 2005–77 TABLE 1

Applicable Federal Rates (AFR) for December 2005

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term

AFR 4.34% 4.29% 4.27% 4.25% 110% AFR 4.78% 4.72% 4.69% 4.67% 120% AFR 5.22% 5.15% 5.12% 5.10% 130% AFR 5.66% 5.58% 5.54% 5.52%

Mid-term

AFR 4.52% 4.47% 4.45% 4.43% 110% AFR 4.98% 4.92% 4.89% 4.87% 120% AFR 5.43% 5.36% 5.32% 5.30% 130% AFR 5.89% 5.81% 5.77% 5.74% 150% AFR 6.82% 6.71% 6.65% 6.62% 175% AFR 7.97% 7.82% 7.75% 7.70%

Long-term

AFR 4.79% 4.73% 4.70% 4.68% 110% AFR 5.27% 5.20% 5.17% 5.14% 120% AFR 5.76% 5.68% 5.64% 5.61% 130% AFR 6.24% 6.15% 6.10% 6.07%

REV. RUL. 2005–77 TABLE 2

Adjusted AFR for December 2005

Period for Compounding

Annual Semiannual Quarterly Monthly

Short-term adjusted 2.98% 2.96% 2.95% 2.94% AFR

Mid-term adjusted AFR 3.51% 3.48% 3.46% 3.46%

Long-term adjusted 4.40% 4.35% 4.33% 4.31% AFR

December 5, 2005 1071 2005–49 I.R.B.

REV. RUL. 2005–77 TABLE 3

Rates Under Section 382 for December 2005

Adjusted federal long-term rate for the current month 4.40%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.40%

REV. RUL. 2005–77 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for December 2005 Appropriate percentage for the 70% present value low-income housing credit 8.08%

Appropriate percentage for the 30% present value low-income housing credit 3.46%

REV. RUL. 2005–77 TABLE 5

Rate Under Section 7520 for December 2005

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 5.4%

REV. RUL. 2005–77 TABLE 6

Applicable rate of interest for 2006 for purposes of sections 846 and 807 3.98%

ing. A cash method debt instrument is a qualified debt instrument that meets the following additional requirements: (A) In the case of instruments arising out of sales or exchanges before January 1, 1990, 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) § 1274 would have applied to the debt instrument but for an election under § 1274A(c); and (D) an election under § 1274A(c) is jointly made with respect to the debt instrument by the borrower and lender. Section 1.1274A–1(c)(1) of the Income Tax Regulations provides rules concerning the time for, and manner of, making this election.

Section 1274A(d)(2) provides that, for any debt instrument arising out of a sale or exchange during any calendar year after 1989, the dollar amounts stated in § 1274A(b) and § 1274A(c)(2)(A) are increased by the inflation adjustment for the calendar year. Any increase due to the inflation adjustment is rounded to the nearest multiple of $100 (or, if the increase is a multiple of $50 and not of $100, the increase is increased to the nearest multiple of $100). The inflation adjustment