- 8 -
& Neon, Inc. v. Commissioner, 56 T.C. 1324, 1339 (1971), affd.
without published opinion 496 F.2d 876 (5th Cir. 1974).
Petitioner made loans, without written repayment terms, to its
only shareholders and had unfettered discretion to determine when
the loans would be repaid. Therefore, the loans are demand
loans.
We note that a technical correction in the Tax Reform Act of
1986 amended section 7872(f)(5) and expanded the definition of
demand loan to include, "To the extent provided in regulations,
* * * any loan with an indefinite maturity." Tax Reform Act of
1986, Pub. L. 99-514, sec. 1812(b)(3), 100 Stat. 2834. The
legislative history accompanying the technical correction
provides the following justification for the amendment:
The definitions of term loan and demand loan in
section 7872 appear to treat loans with an indefinite
maturity as term loans. However, it often is
impractical to treat a loan with an indefinite maturity
as a term loan, since section 7872 requires the
computation of the present value of the payments due
under such a loan. Accordingly, the bill grants the
Treasury Department authority to treat loans with
indefinite maturities as demand loans rather than term
loans. [S. Rept. 99-313, at 958 (1986), 1986-3 C.B.
(Vol. 3) 1, 958; emphasis added.]
The Department of the Treasury, however, has not promulgated
final regulations for section 7872, and the proposed regulations
fail to address the treatment of loans that have indefinite
maturities and are not payable on the demand of the lender. As a
result, such loans are not demand loans and, pursuant to section
7872(f)(6), are term loans.
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