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How Low Can You Go? Some Consequences Of Substituting A Lower Afr Note For A Higher Afr Note, Bridget J. Crawford

Elisabeth Haub School of Law Faculty Publications

Instead of paying off a high-interest-rate note to a family member with cash or with non-cash assets that might result in the recognition of gain, it appears possible for a borrower to issue a new note at the lower current AFR and substitute it for the old note, without adverse tax consequences. Intrafamilial arrangements labeled as loans have long invited special scrutiny from the IRS. In some cases, the Service has successfully established that the arrangement was not a loan but another type of transfer, such as a gift. In the wake of several IRS victories in cases where somewhat …