100 STAT. 2834
PUBLIC LAW 99-514—OCT. 22, 1986 self-dealing) is amended by striking out "without interest or other charge" and inserting in lieu thereof "without interest or other charge (determined without regard to section 7872)", (2) COORDINATION WITH WITHHOLDING.—Paragraph (9) of section 7872(f) (relating to no withholding) is amended to read as r follows: "(9) No WITHHOLDING.—No amount shall be withheld under chapter 24 with respect to— "(A) any amount treated as transferred or retransferred under subsection (a), and i7 "(B) any amount treated as received under subsection (b)." (3) DEFINITION OF DEMAND LOAN.—Paragraph (5) of section
7872(f) (defining demand loan) is amended to read as follows: "(5) DEMAND LOAN.—The term 'demand loan' means any loan which is payable in full at any time on the demand of the lender. Such term also includes (for purposes other than determining the applicable Federal rate under paragraph (2)) any loan if the benefits of the interest arrangements of such loan are not transferable and are conditioned on the future performance of substantial services by an individual. To the extent provided in regulations, such term also includes any loan with an indefinite maturity." (4) CLARIFICATION OF APPLICABLE FEDERAL RATE.—Subpara-
graph (B) of section 7872(fK2) (defining applicable Federal rate) is amended by inserting ", compounded semiannually" immediately before the period at the end thereof. (5) CERTAIN ISRAEL BONDS NOT SUBJECT TO RULES RELATING TO BELOW-MARKET LOANS.—Section 7872 of the Internal Revenue
Code of 1954 (relating to treatment of loans with below-market interest rates) shall not apply to any obligation issued by Israel if— (A) the obligation is payable in United States dollars, and (B) the obligation bears interest at an annual rate of not less than 4 percent. (c) AMENDMENTS RELATED TO SECTION 174 OF THE ACT.— (1) TREATMENT OF FOREIGN PERSONS.—Subsection (a) of section
267 is amended by adding at the end thereof the following new paragraph: "(3) PAYMENTS TO FOREIGN PERSONS.—The Secretary shall by ^ regulations apply the matching principle of paragraph (2) in cases in which the person to whom the payment is to be made is not a United States person." (2) TREATMENT OF CERTAIN SALES OF INVENTORY EXPANDED.—
Subparagraph (B) of section 267(fK3) (relating to loss deferral rules not to apply in certain Cases) is amended by inserting "(or persons described in subsection (b)(10))" after "same controlled group". (3) TREATMENT OF CERTAIN RELATED PARTNERSHIPS.—
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(A) Effective with respect to sales or exchanges after September 27, 1985, paragraphs (I)(A) and (2)(A) of section 707(b) (relating to certain sales or exchanges of property with respect to controlled partnerships) are each amended by striking out "a partner' and inserting in lieu thereof "a person". (B) Paragraph (1) of section 707(b) is amended by adding at the end thereof the following new sentence: "For pur-
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