Applicable Federal Rate


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Applicable Federal Rate

The interest rate the IRS assumes when it calculates imputed interest. Imputed interest is interest that is assigned to an investment for tax purposes even when no interest has been paid. Thus, one pays taxes on the applicable federal rate. It is published by the U.S. Treasury.
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The applicable federal rate (see Q 7513) for demand loans is the short-term rate in effect during the period for which the forgone interest is being determined, compounded semiannually.
14) The present value is determined with a discount rate based on the applicable federal rate (AFR).
The new issue price is determined by calculating the present value of all payments under the new debt at the applicable federal rate back to the date of the modification.
The amount outstanding on the loan is expected to bear interest equal to the applicable federal rate, of which 2% per annum is expected to be payable quarterly in cash and all remaining interest is expected to accrue and only become due at maturity.
Since these funds are loaned to the trust and not gifted, (1) the Diedrichs will incur no gift taxation on the transfer and (2) the trust will be required to pay annual interest to the Diedrichs on the note at the prevailing long term applicable federal rate (AFR).
equal to the applicable Federal rate (AFR), payable at least annually), the company is deemed to transfer additional compensation (or dividends, if the executive is a shareholder) equaling the forgone loan interest for the period the loan is outstanding.
The rate to value remainder interests is determined by the midterm applicable federal rate for the month in which the valuation date occurs.
Yield to maturity, calculated under the original issue discount (OLD) rules, equals or exceeds the applicable federal rate (AFR) plus 5%.
Initial rates on these loans must match or exceed the Applicable Federal Rate (AFR) to avoid being deemed a gift.
The ILIT then pays loan interest back to the donor based on the applicable federal rate, the term of the loan and the type of loan.
163(i)(1)(A)); (3) the debt must have a yield to maturity (YTM) that equals or exceeds the sum of the applicable Federal rate in effect for the calendar month in which the DI is issued, plus five percentage points (Sec.
A "below-market" loan is any demand loan where the interest rate is less than the applicable Federal rate or a term loan where the amount loaned exceeds the present value of all payments due under the loan (determined by using a discount rate equal to the applicable Federal rate).