INTEREST ON CERTAIN DEFERRED PAYMENTS.

SEC. 224. INTEREST ON CERTAIN DEFERRED PAYMENTS. (a) In General.—Part III of subchapter E of chapter 1 (relating to accounting periods and methods of accounting) is amended by adding at the end thereof the following new section: “SEC. 483. INTEREST ON CERTAIN DEFERRED PAYMENTS. “(a) Amount Constituting Interest.—For purposes of this title, in the case of any contract for the sale or exchange of property there shall be treated as interest that part of a payment to which this section applies which bears the same ratio to the amount of such payment as the total unstated interest under such contract bears to the total of the payments to which this section applies which are due under such contract. “(b) Total Unstated Interest.—For purposes of this section, the term ‘total unstated interest’ means, with respect to a contract for the sale or exchange of property, an amount equal to the excess of— “(1) the sum of the payments to which this section applies which are due under the contract, over “(2) the sum of the present values of such payments and the present values of any interest payments due under the contract. For purposes of paragraph (2), the present value of a payment shall be determined, as of the date of the sale or exchange, by discounting such payment at the rate, and in the manner, provided in regulations prescribed by the Secretary or his delegate. Such regulations shall provide for discounting on the basis of 6-month brackets and shall provide that the present value of any interest payment due not more 78 Stat. 78than 6 months after the date of the sale or exchange is an amount equal to 100 percent of such payment. “(c) Payments to Which Section Applies.— “(1) In general.—Except as provided in subsection (f), this section shall apply to any payment on account of the sale or exchange of property which constitutes part or all of the sales price and which is due more than 6 months after the date of such sale or exchange under a contract— “(A) under which some or all of the payments are due more than one year after the date of such sale or exchange, and “(B) under which, using a rate provided by regulations prescribed by the Secretary or his delegate for purposes of this subparagraph, there is total unstated interest. Any rate prescribed for determining whether there is total unstated interest for purposes of subparagraph (B) shall be at least one percentage point lower than the rate prescribed for purposes of subsection (b)(2). “(2) Treatment of evidence of indebtedness.—For purposes of this section, an evidence of indebtedness of the purchaser given in consideration for the sale or exchange of property shall not be considered a payment, and any payment, due under such evidence of indebtedness shall be treated as due under the contract for the sale or exchange. “(d) Payments That Are Indefinite as to Time, Liability, or Amount.—In the case of a contract for the sale or exchange of property under which the liability for, or the amount or due date of, any portion of a payment cannot be determined at the time of the sale or exchange, this section shall be separately applied to such portion as if it (and any amount of interest attributable to such portion) were the only payments due under the contract; and such determinations of liability, amount, and due date shall be made at the time payment of such portion is made. “(e) Change in Terms of Contract.—If the liability for, or the amount or due date of, any payment (including interest) under a contract for the sale or exchange of property is changed, the ‘total unstated interest’ under the contract shall be recomputed and allocated (with adjustment for prior interest (including unstated interest) payments) under regulations prescribed by the Secretary or his delegate. “(f) Exceptions and Limitations.— “(1) Sales price of $3,000 or less.—This section shall not apply to any payment on account of the sale or exchange of property if it can be determined at the time of such sale or exchange that the sales price cannot exceed $3,600. “(2) Carrying charges.—In the case of the purchaser, the tax treatment of amounts paid on account of the sale or exchange of property shall be made without regard to this section if any such amounts are treated under section 163(b) as if they included interest. “(3) Treatment of seller.—In the case of the seller, the tax treatment of any amounts received on account of the sale or exchange of property shall be made without regard to this section if no part of any gain on such sale or exchange would be considered as gain from the sale or exchange of a capital asset or property described in section 1231. “(4) Sales or exchanges of patents.—This section shall not apply to any payments made pursuant to a transfer described in section 1235 (a) (relating to sale or exchange of patents). 78 Stat. 79 “(5) Annuities.—This section shall not apply to any amount the liability for which depends in whole or in part on the life expectancy of one or more individuals and which constitutes an amount received as an annuity to which section 72 applies.” (b) Clerical Amendment.—The table of sections for such part is amended by adding at the end thereof the following new item: “Sec. 483. Interest on certain deferred payments.” (c) Certain Carrying Charges.—Section 163(b)(1) (relating to installment purchases where interest charge is not separately stated) is amended— (1) by striking out “personal property is purchased” and inserting in lieu thereof “personal property or educational services are purchased”; and (2) by adding at the end thereof the following new sentence: “For purposes of this paragraph, the term ‘educational services’ means any service (including lodging) which is purchased from an educational institution (as defined in section 151(e)(4)) and which is provided for a student of such institution.” (d) Effective Date.—The amendments made by subsections (a) and (b) shall apply to payments made after December 31, 1963, on account of sales or exchanges of property occurring after June 30, 1963, other than any sale or exchange made pursuant to a binding written contract (including an irrevocable written option) entered into before July 1, 1963. The amendments made by subsection (c) shall apply to payments made during taxable years beginning after December 31, 1963.