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Discussion:Accrued Interest - Related party

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Discussion Forum Index --> Advanced Tax Questions --> Accrued Interest - Related party


Discussion Forum Index --> Tax Questions --> Accrued Interest - Related party

Jeff-Ohio (talk|edits) said:

18 February 2014
Searched yellow boxes, read pages and pages in RIA, I can't find the answer to this related party question.

AMS and MAS are each owned 60% by J and 40% by the M'S trust. AMS has interest accrued to MAS– not paid at the end of the year.

Deductible or an M-1 item on the tax return.

I believe it's a related party issue - I am 'sometimes' wrong

Coddington (talk|edits) said:

18 February 2014
Look at Sec. 267(f). Like Ed Zollars (well-known Arizona CPA) always said: Start with the Code.

JR1 (talk|edits) said:

February 18, 2014
My rule has been to be consistent. Report one, report the other. All cash or all accrual.

Jeff-Ohio (talk|edits) said:

18 February 2014
Thank you both.

I read the Sec before my post - my issue is with the trust, but it appears as though it falls into the related party definition.

JR1 - good rule

Smokeytax (talk|edits) said:

18 February 2014
I hear that the IRS is sometimes asserting that IRC 267(f) says that if related lender is accrual basis and the related borrower cash basis, the lender still has to accrue the interest income even if the cash basis borrower can't deduct it until it's paid. So, there could be a lack of consistency.

Terry Oraha (talk|edits) said:

18 February 2014
I listen to Ed Zollars weekly podcasts, now that's a good show.

Terry Oraha (talk|edits) said:

18 February 2014
Smokey is right. I wasn't thinking that far ahead but I was wondering why the basis of accounting method for AMS and MAS aren't even listed in the thread. Plus although 60% is sufficient to establish control, but just curious are these flow throughs?

Jeff-Ohio (talk|edits) said:

18 February 2014
They are both accrual...both.

So in going with JR1 theory, as long as I report the income on one, I can deduct the interest on the other - even though not paid.

Harry Boscoe (talk|edits) said:

18 February 2014
If they are both accrual basis taxpayers, the interest *is* taxable to one, and it *is* deductible to the other, when it accrues. Actual (or constructive, I guess) payment of the interest is irrelevant.

Jeff-Ohio (talk|edits) said:

18 February 2014
Thank you Harry!

Learn something new everyday.

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