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Article: Below-market loans may have unexpected tax results: tax advisers should be aware of the type of arrangements subject to imputed interest rules under Sec. 7872. This article describes the major types of below-market loan transactions, as well as the exceptions and how the rules apply to such transactions.
- Article from:
- The Tax Adviser
- Article date:
- June 1, 2006
- Author:
CopyrightCOPYRIGHT 2006 American Institute of CPA's. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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EXECUTIVE SUMMARY
* A below-market loan is broadly defined as a loan that does not require interest payments or requires such payments at a rate below a statutorily defined rate.
* The below-market loan rules may apply to a variety of transactions, including loans between employers and employees, corporations and shareholders, and relatives.
* For individuals, the rules do not apply to small gift loans between individuals, and, for gift loans less than $100,000, imputed interest is limited to the borrower's net investment income.
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Sec. 7872 recharacterizes a "below-market" loan as an arms-length transaction in which ...