Interest

Upon successful completion of this course, participants will be able to:

• Determine “interest” and select how much is tax deductible under §163 by:
  • Identifying what constitutes bona fide debt considering economic substance and purpose and the differences that such debt has from installment sales, long-term & leveraged leases, and annuities;
  • Specifying how transactions with family members and controlled corporations can recharacterize alleged indebtedness into gift or business equity naming the factors used in this recharacterization and;
  • Recognizing incentives to use corporate debt instead of equity and the special treatment of failed equity investment under §1244.
• Identify deductible interest and special calculation concepts and procedures by:
  • Recognizing the allocation of interest based on the debt’s business or personal purpose specifying the application of any carryover rules;
  • Determining net investment income including its impact on the deductibility of investment interest;
  • Recognizing the special tax treatment given to student loans, margin accounts, and market discount bonds stating what happens to any disallowed interest expense; and
  • Specifying the timing considerations in interest reporting including interest paid in advance.
• Recognize nondeductible interest types and provisions that through restriction create nondeductible interest by:
  • Identifying when interest is nondeductible personal interest under §163(h)(1);
  • Determining the disallowance of interest related to tax-exempt income under §265, the life insurance interest restrictions of §264; the §465 at-risk limitations and application of the §469 passive loss rules; and
  • Specifying the treatment of certain commitment fees and service charges based on R.R. 67-297 and caselaw.
• Identify interest under the cash or accrual method recognizing the special elections applicable to and treatment of carrying charges under §266, below-market loans, and imputed interest.