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Gift Loans Expand / Collapse
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Anonymous
Posted 8/2/2009 10:09:30 PM




Has anyone ever taken or seen a discount on a 706 for gift loans made by the decedent to family members, children and grandchildren?

I understand that these loans cannot be compared to commercial loans. A commercial lender would never make loans with such low rates. All of these loans bear the appropriate AFR in effect at the time the loan was made considering the length of the loan. The reason the loans were made at such a low rate was to avoid the treatment as a gift at he time of the loan.

I cannot find any authoritative support to justify a discount, but I want to make certain that I am not missing anything.
Post #796
Posted 8/3/2009 9:55:04 AM
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I have claimed discounts when clients have made loans where the interest is less than the AFR as of the date of death. I haven't had the situation where the loans were intrafamily though.

I just checked the PPC Form 709 Deskbook - it discusses "below-market interest rate" loans on Page 5-3. It says that demand notes cannot be discounted but a term loan can be discounted considering the interest rate for a comparable instrument taking into account late payments or inadequate security. In your case, I guess you're saying that there are no comparable interest rates.

There is a reference to PLR 8229001.

Mary Kay Foss

Post #797
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