This course brings the practitioner up-to-date information on tax issues affecting interest and debt. It covers the definition of bona fide debt, the avoidance of equity and lease treatment, imputed interest rates and debt modification. The various types of interest and their required allocation are explored and reviewed. For the economically troubled client, special attention is devoted to debt cancellation, repossession, discounts, and foreclosure. The program also discusses installment sales, equity participation debt, taxable interest, and bad debts.
Delivery Method: Online Interactive Self Study
Advanced Preparation: None
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Author: Danny Santucci
Field of Study: Taxes
Passing Score: 70%
Publication Date: 02/14/2017
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Chapter 1 Deductible Interest & Debt
1. Determine "interest" and select how much is tax deductible under Section 163 by:
a. Identifying what constitutes bona fide debt considering economic substance and purpose and specifying how transactions with family members and controlled corporations can recharacterize alleged indebtedness into gift or business equity noting the factors used in this recharacterization; and
b. Specify the incentives to use corporate debt instead of equity, recognizing the special treatment of failed equity investment under Section 1244, and determining the differences among debt from installment sales, long-term and leveraged leases, and annuities.
2. Identify deductible interest noting special calculation concepts and procedures by:
a. Recognizing the allocation of interest based on the debt's purpose noting the application of any carryover rules and determining net investment income noting its relationship investment interest deduction; and
b. Identifying the special tax treatment given to student loans, margin accounts, and market discount bonds noting what happens to any disallowed interest expense and specifying the timing considerations in interest reporting including interest paid in advance.
3. Identify nondeductible interest noting provisions that deny or restrict the deduction of interest by:
a. Recognizing when interest is nondeductible personal interest under Section 163(h)(1) and identifying the disallowance of interest related to tax-exempt income under Section 265, the life insurance interest restrictions of Section 264; the Section 465 at-risk limitations and the application of the Section 469 passive loss rules; and
b. Specifying the treatment of commitment fees and service charges based on R.R. 67-2897 and case law.
4. Recognize the deduction of interest using either the cash method or accrual method, determine the special elections applicable to and treatment of carrying charges under Section 266, below-market loans, imputed interest and original issue discount.
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