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Imputed Interest for Below Market Rate Loan. Tax Planning & Compliance CPA TCP Exam.

In this video, I explain imputed interest below market rate loan as covered on the CPA TCP exam. Start your free trial👉https://lnkd.in/g4hZAp2 The IRS has specific rules for imputed interest, which apply to below-market loans in certain situations. These rules require the lender to report interest income even if no interest is charged. Here's a breakdown of the types of loans subject to these rules: Gift Loans: These are loans between individuals, such as friends and family members. When no or low interest is charged, the IRS may consider the foregone interest as a gift, and it may have tax implications. Compensation-Related Loans: This category includes loans between employers and employees or between independent contractors and their clients. If an employer provides a low-interest or interest-free loan to an employee, it could be seen as a form of compensation. Corporation-Shareholder Loans: These are loans between a corporation and its shareholders. If a shareholder receives a below-market loan from the corporation, the IRS might view the foregone interest as a benefit to the shareholder. Tax-Avoidance Loans: This refers to any below-market loan where avoiding federal tax is a primary purpose of the interest arrangement. The IRS closely scrutinizes these loans to prevent tax evasion. Loans to Qualified Continuing Care Facilities: This includes loans made to qualified continuing care facilities under a continuing care contract. It applies if the lender, or the lender's spouse, is 65 years or older by the end of the year. These loans often involve arrangements for long-term care. In each of these cases, the IRS imputes interest on the loan – that is, it treats the loan as if it had interest at the market rate, even if it doesn't. This imputed interest is then treated as income for the lender and potentially as a gift, compensation, or another type of benefit for the borrower, with various tax implications. #cpaexaminindia #cpaexam #accountinglectures