Rev. Rul. 89-48

Supplemented and Superseded by 89-129

                       Internal Revenue Service

                                 Revenue Ruling

                    LOANS; LOAN LIMIT ADJUSTED FOR INFLATION

                            Published: April 3, 1989

Section 7872. - Treatment of Loans with Below-Market Interest Rates

  Loans; loan limit adjusted for inflation. The loan limit specified by section 7872(g)(2) of the Code is adjusted for inflation for the years 1987, 1988, and 1989.

  This revenue ruling contains the amount, increased by the inflation adjustments for 1987, 1988, and 1989, that section 7872(g) of the Internal Revenue Code permits a taxpayer to lend to a qualifying continuing care facility without incurring imputed interest.

  Section 7872 of the Code generally treats loans bearing a below-market interest rate as if they bear interest at the market rate.

  Section 7872(g)(1) of the Code provides that section 7872 does not apply for any calendar 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 the year.

  Section 7872(g)(2) of the Code provides that section 7872(g)(1) shall apply only to the extent that the aggregate outstanding amount of any loan to which section 7872(g) applies (determined without regard to section 7872(g)(2)), when added to the aggregate outstanding amount of all other previous loans between the lender (or the lender's spouse) and any qualified continuing care facility to which section 7872(g)(1) applies, does not exceed $90,000.

  Section 7872(g)(5) of the Code provides that for loans made during any calendar year after 1986 to which section 7872(g)(1) applies, the $90,000 limit specified in section 7872(g)(2) shall be increased by an inflation adjustment. The inflation adjustment for any calendar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for calendar year 1985. Section 7872(g)(5) states that the CPI for any calendar year is the average of the CPI as of the close of the 12-month period ending on September 30 of such calendar year.

  Table 1 sets forth the amount specified in section 7872(g)(2) of the Code, increased by the inflation adjustment for the years 1987, 1988, and 1989.

        Table 1

Limit under 7872(g)(2)

Adjusted for inflation

Year     Adjusted Amount

1987     $92,200

1988     $94,800

1989     $98,800

DRAFTING INFORMATION

  The principle author of this revenue ruling is Timothy L. Jones of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling contact Timothy L. Jones on (202) 566-3828 (not a toll-free call).

Rev. Rul. 89-48, 1989-1 C.B. 323, 1989-14 I.R.B. 19.