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For these reasons we conclude that the deferred payment
arrangement is a “loan” for purposes of section 7872.
B. Below-Market Loan
Section 7872 sets forth two definitions of below-market
loans. One definition applies to demand loans; the other applies
to term loans. Sec. 7872 (e)(1)(A), (B).
A “demand loan” is defined as “any loan which is payable in
full at any time on the demand of the lender.” Sec. 7872(f)(5).
A “term loan” is defined as “any loan which is not a demand
loan.” Sec. 7872(f)(6).
The deferred payment arrangement required Jean True’s sales
to be consummated “within 6 months” after the notice dates. It
did not give Jean True the right to payment on demand. Because
the deferred payment arrangement was not a “demand loan” as
defined in section 7872(f)(5), it is a “term loan” under section
7872(f)(6).
A term loan is a “below-market loan” if the “amount loaned”
exceeds the present value of all payments due under the loan,
discounted at the applicable Federal rate in effect as of the
date of the loan. Sec. 7872(e)(1)(B), (f)(1). Neither party has
argued that the “amount loaned” was other than the $13,298,978
aggregate sales price of Jean True’s interests under the buy-sell
agreements, and we assume that the “amount loaned” was equal to
that price.
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