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Interesting Interest: Interest Rates for Intra-Family Transactions



Thursday, October 18, 2012
Product Code - TMW02
Speaker(s): Alan S. Gassman, Esq., Gassman, Bates and Associates and Jerome M. Hesch, Esq., Miami, FL
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Tax advisors often assume that the optimal interest rate on an intra-family loan is the lowest rate that avoids interest imputation and resulting taxation on the loan. Although that approach will avoid imputed income to the lender, it will leave on the table opportunities to further the client’s income tax and estate tax planning goals.

This presentation will examine not only the minimum interest rates that must be used for intra-family sales and loans, but also discuss the maximum interest rates permitted and examine the application of these minimum and maximum rules to commonly-used income tax planning and estate planning transactions such as how the interest risk premium for a SCIN is computed. The program will also address when cash method taxpayers must report interest income and interest deductions under the OID rules even though the interest has not been paid. The speakers will analyze the income tax and gift tax treatment when high interest rate debt obligations (even those between a grantor and a grantor trust) are renegotiated, and how to restructure the promissory note so that there is no gift. The program will then examine how to “defrost the freeze,” dealing with the potential gift tax and income tax issues raised when the remaining principal on the intra-family debt obligation, be it an installment sale or a GRAT, is in excess of the value of the asset sold to the grantor trust or contributed to the GRAT.

This live webinar will provide participants with a conceptual understanding and practical application of:

  • The imputed interest rules of Code §7872 and how they work for both income and gift tax purposes
  • When the use of a high interest rate may be advisable
  • How interest income is accrued and reported under the OID rules
  • The tax consequences of undoing an “underwater” obligation between family members.

Education Objectives

Participants will learn to:

  • Identify opportunities for tax savings when creating intra-family obligations
  • Avoid the pitfalls inherent in the OID rules
  • Advise clients on how to exit from unproductive planning strategies at the lowest tax cost

Alan S. Gassman, Esq., Gassman, Bates and Associates and Jerome M. Hesch, Esq., Miami, FL

 Alan S. Gassman, J.D., LL.M. practices law in Clearwater, Florida. Each year he published numerous articles in publications such as BNA Tax & Accounting, Estate Planning, Trusts and Estates, The Journal of Asset Protection, and Steve Leimberg’s Asset Protection Planning Newsletters. Mr. Gassman is a fellow of the American Bar Foundation, a member of the Executive Council of the Tax Section of the Florida Bar, and has been quoted on many occasions in publications such as The Wall Street Journal, Forbes Magazine, Medical Economics, Modern Healthcare, and Florida Trend magazine. He is an author, along Kenneth Crotty and Christopher Denicolo, of the BNA Tax & Accounting book Estate Tax Planning in 2011 and 2012. He is the senior partner at Gassman Law Associates, P.A. in Clearwater, Florida, which he founded in 1987.

Jerome M. Hesch practices law in Miami, Florida and is a tax and estate planning consultant for lawyers throughout the country. He is a member of ACTEC, has published numerous articles, several Tax Management Portfolios, and co-authored a law school casebook on Federal Income Taxation, now in its third edition. He has appeared for groups such as the AICPA, the University of Miami Heckerling Institute on Estate Planning, the University of Southern California Tax Institute and the New York University Institute on Federal Taxation. He has participated in several bar association projects, such as the Drafting Committee for the Florida Revised Uniform Partnership Act and preparing the ABA’s comments on the IRS’s proposed private annuity regulations. He received his BA and MBA degrees from the University of Michigan and a JD degree from the University of Buffalo Law School. He was with the Office of Chief Counsel, Internal Revenue Service, Washington, D.C. from 1970 to 1975, and was a full-time law professor from 1975 to 1994. He is currently an adjunct professor of law at the Florida International University and the University of Miami law schools.