Guidance Released for Some Debt Instruments Issued for Property

The Internal Revenue Service has issued Revenue Ruling 2021-01, which lays out the prescribed rates for various income tax purposes.

The ruling includes rates including those for applicable federal interest rates, adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate.

The rates are determined as laid out in § 1274.

Setting the table for income taxes

The revenue ruling spells out the applicable interest rates in a series of tables:

  • Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code.
  • Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). These rates are set at 0.11%; 0.39%; and 1.03%, respectively.
  • Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). The ruling sets both these rates at 1.03%.
  • Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. (However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%.) These rates were set at 7.21% and 3.09%, depending on the percentage claimed.
  • Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. For all these instances, the rate was set at 0.6%.
  • Table 6 contains the deemed rate of return for transfers made during calendar year 2021 to pooled income funds described in section 642(c)(5) that have been in existence for less than 3 taxable years immediately preceding the taxable year in which the transfer was made.

The IRS says these rates are published monthly for purposes of sections 42, 382, 412, 642, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.

The January rates for the coming year will appear in IRB 2021-02, dated Jan. 11, 2021.

Source: Rev Ruling 2021-01 

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