Handling the OID and Below Market Loan Rules
Author: Jennifer Kowal
| CPE Credit: |
2 hours for CPAs
2 hours Federal Tax Related for EAs and OTRPs
2 hours Federal Tax Law for CTEC |
The Original Issue Discount rules often result in the recognition of income without associated cash, typically an unwelcome tax situation. The OID rules override a taxpayer's normal method of accounting, requiring interest to be allocated over the life of a loan, regardless of when it is actually paid. In this course, participants will learn how to tell if a debt instrument has original issue discount, as well as the rules for allocating OID to different accrual periods. It will also explain how the OID rules apply to sales of property in exchange for a note, in which part of the purchase price may be reclassified as interest, converting what would be capital gain to the seller to ordinary income. Finally, Ms. Kowal will cover the below market loan rules, which impute interest on below market loans between related parties.
Publication Date: July 2023
Designed For
Tax practitioners at all levels who provide advice and return preparation involving debt instruments.
Topics Covered
- Original Issue Discount Rules explanation
- Exceptions to OID rules
- Mechanics of allocating interest to various periods
- Application of OID and imputed interest to debt instruments issued in exchange for property
- Imputing interest under below market loan rules
Learning Objectives
- Identify what original issue discount is, when it applies and when it does not
- Recognize how to calculate how to spread OID across multiple accrual periods
- Describe how OID rules work when debt instruments are issued in exchange for property
- Recognize how to gain familiarity with below market loan rules and interest imputation
Level
Intermediate
Instructional Method
Self-Study
NASBA Field of Study
Taxes (2 hours)
Program Prerequisites
Basic familiarity with debt instruments.
Advance Preparation
None
