imputed interest rate

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Imputed Interest Rate

The minimum interest rate that the government assumes is paid on a loan, even if the actual interest rate is lower. The U.S. government places an imputed interest rate on some loans to reduce tax avoidance by some organizations that make loans well below market interest rates. The IRS also applies imputed interest on some bonds so that tax is paid every year on the interest, even if the bondholder does not receive coupon payments until maturity.

imputed interest rate

A minimum market rate of interest assumed by the government for tax purposes regardless of the actual rate charged on a loan. The imputing of interest was included as part of the 1984 tax act in order to stop tax avoidance by people making loans at artificially low interest rates.
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To overcome this problem, the author proposes maintaining the arm's-length standard but applying it more rigidly--that is, to re-characterize intra-group equity investments as long-term subordinated debt (with imputed interest rates).
Since there is a market price at which risky Irish technology companies borrow, the imputed interest rate in this transaction could be determined.
The imputed interest rate that they would have to pay would highlight their lower borrowing power.
If the Fed doesn't show up at the table, the price of bonds will likely drop, which will increase the imputed interest rates.