Build a below-market shareholder-loan issues table under section 7872
Key facts
- Human involvement
- RedLawyer-led
- How AI is used
- Build a table of the § 7872 questions for each loan the lawyer lists, and leave the rate, the present value, and every conclusion blank. Do not draft the loan. Leave the trust-distribution column blank.
- What the lawyer must review
- Section 7872 applies, among other loans, to a below-market loan directly or indirectly between a corporation and any shareholder of that corporation. A demand loan is below-market if interest is payable at less than the applicable Federal rate. A term loan is below-market if the amount loaned, which is the amount the borrower received, exceeds the present value of all payments due under the loan. A demand loan is payable in full at any time on the demand of the lender. For purposes other than the applicable Federal rate, the term also includes a loan whose interest-arrangement benefits are not transferable and are conditioned on an individual's future performance of substantial services. To the extent regulations provide, it also includes a loan of indefinite maturity. Any other loan is a term loan. For a gift loan or a demand loan, forgone interest is treated as transferred from the lender to the borrower and retransferred by the borrower as interest. Unless regulations say otherwise, forgone interest for a calendar year is treated as transferred on the last day of that year. Forgone interest is the excess of the interest that would have been payable if interest had accrued at the applicable Federal rate and been payable annually on that day, over the interest payable on the loan and properly allocable to the period. A below-market loan to which subsection (a)(1) does not apply is treated under subsection (b). The lender is treated as transferring, on the date of the loan or, if later, the first day the section applies, and the borrower is treated as receiving, cash equal to the excess of the amount loaned over the present value of all payments the loan requires. That excess is original issue discount in addition to any other original issue discount. For a corporation-shareholder loan, the section does not apply on a day when the aggregate outstanding loans between that borrower and that lender do not exceed $10,000, unless one of the principal purposes of the interest arrangements is the avoidance of any Federal tax. A husband and wife are treated as one person. If the section applies to a term loan on any day, it continues to apply even though the de minimis paragraphs would otherwise take it out. For a gift loan, that continuation is only for purposes of chapter 12. The applicable Federal rate for a term loan is the rate under § 1274(d) in effect on the day the loan was made, compounded semiannually. For a demand loan it is the Federal short-term rate under § 1274(d) for the period being measured, compounded semiannually. Section 1274(d) was not opened. Do not write a percentage. Present value is determined as the Secretary's regulations provide, as of the date of the loan, using that rate as the discount rate. The section does not apply to a loan to which § 483, § 643(i), or § 1274 applies. Those sections were not opened. Trust-distribution rules were not opened, so that column stays blank apart from the § 643(i) cross-reference. You write every conclusion. This table is not a loan agreement.
- Written for / version
- United States versionUSCth
Who does what
| Role | What they do |
|---|---|
| Assistance | Supporting preparation only. Limit any support to organising, indexing or comparing the source material. Confirm the tool’s capability and permitted scope. The tool writes nothing into the document. Substantive advice, judgement and any restricted content remain with the responsible human. |
| Lawyer | Perform the substantive analysis and decisions. Independently check any permitted supporting work and approve the exact output for its intended use. |
Checklist
- Trace every relied-on figure to its source, confirm dates and assumptions, and independently recalculate totals or derived amounts.
- Review operative clauses in the complete document, including definitions, cross-references, schedules and inconsistencies with the instructions.
- Verify the applicable jurisdiction and the version of each relevant law, rule or instrument in force at the material time.
- Confirm the output against the client’s instructions and the complete relevant source material, including omissions or contradictions.
- Resolve exceptions and record the responsible lawyer’s approval of the exact output and intended use.