- 31 -
403.4.4.3, at 4-102 to 4-103 (June 2003 ed.), concludes that the
value attributable to below-market indebtedness is amortizable:
Code �197 never applies to the interest of a borrower
or lender in an existing debt obligation (even when
acquired as part of a larger business). [Fn. ref.
omitted.] Thus, according to the * * * [January 2000]
Regulations [interpreting section 197], “the value
attributable to the assumption of an indebtedness with
a below-market interest rate” is not amortizable under
Code �197 * * *
* * * * * * *
EXAMPLE 7. P Assumes T’s Borrower Position
P purchases all of T’s assets and assumes T’s
liabilities, including T’s debt to a third party
bearing a below-market interest rate. P may amortize
the portion of the purchase price allocable to the
favorable financing over the remaining term of the
debt.
IV. Conclusion
Favorable financing involves the right to use borrowed money
at below-market interest rates. The right to use the proceeds of
financing arrangements with below-market interest rates
constitutes an economic benefit. The benefit of petitioner’s
below-market financing can, as a matter of law, constitute an
intangible asset which could be amortized if petitioner
establishes a fair market value and a limited useful life as of
January 1, 1985.
An appropriate order
will be issued.
Page: Previous 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Last modified: May 25, 2011