This course focuses on tax issues affecting the treatment of interest and debt. It covers the definition of bona fide debt, the impact of related parties, the avoid-ance of equity and lease characterization, and deductible versus nondeductible interest factors. Sticky cross issues such as the impact of at-risk rules under Statute 465, passive loss restrictions of Statute 469, and below-market rate loans under Statute 7278 are examined. In addition, the accounting method treatment of interest, points, prepaid interest, and discounted loans are reviewed. Particular attention is giv-en to imputed interest and original issue discount.

Completion Deadline & Exam: This course, including the examination, must be completed within one year of the date of purchase. In addition, unless other-wise indicated, no correct or incorrect feedback for any exam question will be provided.

Course Level: Overview. This program is appropriate for professionals at all or-ganizational levels.

Field of Study: Taxes

Prerequisite: General understanding of federal income taxation.

Advanced Preparation: None

Learning Assignment & Objectives

As a result of studying the assigned materials, you should be able to meet the objectives listed below.

ASSIGNMENT

At the start of the materials, participants should identify the following topics for study:

* Indebtedness

* Deductible interest & mortgage interest

* Investment interest

* Nondeductible interest

* Personal interest & capitalized interest

* At-risk rules

* Passive activity limitations

* Below-market interest rate loans

* Imputed interest on sales

* Original issue discount (OID)

Learning Objectives

After reading the materials, participants will be able to:

1. Determine “interest” and select how much is tax deductible under Statute 163 by:

a. 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;

b. 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;

c. Recognizing incentives to use corporate debt instead of equity and the special treatment of failed equity investment under Statute 1244.

2. Identify deductible interest and special calculation concepts and procedures by:

a. Recognizing the allocation of interest based on the debt’s busi-ness or personal purpose specifying the application of any carryover rules;