- 29 -
existing indebtedness. Section 1.197-2(c)(9), Income Tax Regs.,
interprets this “exception” from section 197 treatment as
follows:
(9) Interests under indebtedness--(i) In general.
Section 197 intangibles do not include any interest
(whether as a creditor or debtor) under an indebtedness
in existence when the interest was acquired. Thus, for
example, the value attributable to the assumption of an
indebtedness with a below-market interest rate is not
amortizable under section 197. * * *
The legislative history to section 197(e)(5)(B) states that
“the value of assuming an existing indebtedness with a below-
market interest rate is to be taken into account under present
law rather than under * * * [section 197].” H. Conf. Rept. 103-
213, at 672 (1993), 1993-3 C.B. 393, 560. Respondent claims that
this reference to present law refers to the rules applicable to
debt; i.e., the interest deduction rules and the OID rules. On
the contrary, we read this legislative history to state that the
treatment of any intangible asset which might arise from below-
market financing is determined under section 167(a), section
1.167(a)-3, Income Tax Regs., and the caselaw interpreting that
Code section and regulation. This encompasses the legal question
that we are deciding in the instant cases. We cannot agree with
respondent’s argument that the reference to present law refers to
the rules relating to interest deductions (section 163) or the
OID rules. There is no support for that argument in the
legislative history.
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 NextLast modified: May 25, 2011