NASSAUSUFFOLK

I have several clients who have been subjected to desk audits by the NYC Department of Finance

The clients have officer's loans payable to their corporation.  The loan note between the corporation and the shareholder states that interest on the note is calculated at prime and is payable as part of a balloon payable from five to fifteen years  in the future. The client is CASH basis.

The NYC Department of Finance has inputed interest income on the loan resulting in a tax due. The Dept of Finance's basis of their adjustment is IRC Section 7872 which deals with BELOW MARKET loans.

We intend to take the position that IRC 7872 does not apply since the loan is at prime. 

Has anyone dealt with this issue and am I correct in my contention that IRC 7872 does not apply?





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Shelly Kronowitz 
516-294-8299
SHELDON H KRONOWITZ CPA PC

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Shelly: Have you looked at the history on the 7872 interest rates! as I believe they are below the prime rate? ------------------------------------------- Robert Brown ROBERT N. BROWN, CPA Jericho NY -------------------------------------------
Original Message: Sent: 12-20-2013 18:08 From: Sheldon Kronowitz Subject: NYC DESK AUDIT - I have several clients who have been subjected to desk audits by the NYC Department of Finance The clients have officer's loans payable to their corporation. The loan note between the corporation and the shareholder states that interest on the note is calculated at prime and is payable as part of a balloon payable from five to fifteen years in the future. The client is CASH basis. The NYC Department of Finance has inputed interest income on the loan resulting in a tax due. The Dept of Finance's basis of their adjustment is IRC Section 7872 which deals with BELOW MARKET loans. We intend to take the position that IRC 7872 does not apply since the loan is at prime. Has anyone dealt with this issue and am I correct in my contention that IRC 7872 does not apply? ------------------------------------------- Shelly Kronowitz 516-294-8299 SHELDON H KRONOWITZ CPA PC -------------------------------------------

Oops, hit send before I finished. The problem you have is that, absent payment of the interest on an annual basis, all you have is a piece of paper from a related party. ------------------------------------------- Robert Brown ROBERT N. BROWN, CPA Jericho NY -------------------------------------------
Original Message: Sent: 12-20-2013 18:10 From: Robert Brown Subject: NYC DESK AUDIT - Shelly: Have you looked at the history on the 7872 interest rates! as I believe they are below the prime rate? ------------------------------------------- Robert Brown ROBERT N. BROWN, CPA Jericho NY -------------------------------------------