Gettry Marcus CPA, P.C. Shares Knowledge about AFRs for Tax Purposes
Leading accounting, tax, consulting and business valuation firm Gettry Marcus CPA, P.C. shares information about applicable federal rates (AFRs).
WOODBURY, N.Y., May 18, 2014 /PRNewswire-iReach/ — Gettry Marcus CPA, P.C., a leading accounting, tax, consulting and business valuation firm, shares knowledge about applicable federal rates (AFRs) for tax purposes.
AFRs are used for a number of federal tax provisions. For example, Code Sec. 1274 uses AFRs to determine whether a debt instrument has original issue discount (OID or imputed interest). This determination requires the calculation of the present value of payments made on the debt instrument; present value is calculated using a discount rate equal to the AFR, compounded semi-annually.
AFRs are based on the average market yield on outstanding marketable obligations of the United States government. Under Code Sec. 1274(d), the AFR includes the federal short-term rate (based on the interest rates for debt instruments of three years or less); the federal mid-term rate (based on the rates for debt instruments of three to nine years); and the federal long-term rate (based on the rates for debt instruments exceeding nine years).
The IRS computes AFRs for each calendar month and publishes them in a revenue ruling. As an example, Rev. Rul. 2014-1, published January 6, 2014, provided the AFRs for January 2014. AFRs may be compounded (and therefore applied) monthly, quarterly, semiannually, or annually. In addition, some amounts are calculated using a higher percentage of the basic AFR. The monthly revenue rulings provide AFRs equal to 110 percent of the base AFR, 120 percent, 130 percent, 150 percent, and 175 percent.
The Tax Code uses AFRs to determine appropriate amounts under a multitude of provisions. These include:
-- The present value of an annuity, life interest, term of years interest, remainder interest, or reversionary interest under Code Sec. 7520; -- Loans with below-market interest rates, under Code Sec. 7872 (the applicable rate depending on the term of the loan); -- Insurance reserves under Code Sec. 807, as well as insurance provisions under Code Secs. 811 and 812; -- The present value of golden parachute payments under Code Sec. 280G (120 percent of the AFR, compounded semiannually); -- Payments for the use of property or services under Code Sec. 467; -- Unrelated business income and debt-financed income under Code Sec. 514; and -- The recharacterization of gain from straddles under Code Sec. 1058.
The AFR revenue rulings also provide adjusted AFRs, which are used to determine the Code Sec. 382 limits on NOLs following ownership changes, and to determine OID on tax-exempt obligations under Code Sec. 1288.
View the full article on the Gettry Marcus website.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Gettry Marcus CPA, P.C. is a top New York City and Long Island CPA firm with offices in Woodbury, Long Island and New York City. We provide accounting, tax, and consulting services to commercial businesses, high net worth individuals and various industries which include real estate and health care. We have one of the premier and most credentialed business valuation, litigation and forensic accounting groups in the New York Area. Our experience in diverse industries and a highly talented and experienced professional staff gives us the ability to share valuable insights into our clients’ businesses, to better understand their goals and problems and to help them attain the vision they have for their company.
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