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Note Receivable - When to pick up accrued interest?

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    #1

    Note Receivable - When to pick up accrued interest?

    I have a client with several notes receivable. All were created in 2009. One is a one year note (which matures in 2010, so I believe the interest would all be picked up in 2010.)

    However, I'm unsure when to pick up the interest for the other two...one is a 20 month note and one is a 3 year note. They are not below market loans.

    Presumably they would need to be taxed as the interest is accrued but I find no authority on this except in the OID rules, which I don't think apply.

    Any thoughts?

    Should have noted that it's 8% interest, payable at the end of each note.

    The client is a cash basis individual tax payer.
    Last edited by D. Lynn; 08-13-2010, 04:28 PM. Reason: Missing information.
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    #2
    Originally posted by D. Lynn View Post
    I have a client with several notes receivable. All were created in 2009. One is a one year note (which matures in 2010, so I believe the interest would all be picked up in 2010.)

    However, I'm unsure when to pick up the interest for the other two...one is a 20 month note and one is a 3 year note. They are not below market loans.

    Presumably they would need to be taxed as the interest is accrued but I find no authority on this except in the OID rules, which I don't think apply.

    Any thoughts?

    Should have noted that it's 8% interest, payable at the end of each note.
    Welcome Lynn,

    You do not say, but was the client a cash basis taxpayer or accrual basis?

    LT
    Only in government or politics is a "cut in spending" really an increase. It's just not as much of an increase as they wanted it to be, therefore a "cut".

    Comment

      #3
      sorry, I didn't include that...individual is cash basis. (revised my original post too)

      Comment

        #4
        Originally posted by D. Lynn View Post
        sorry, I didn't include that...individual is cash basis. (revised my original post too)
        Don't have a cite for you, but it is my understanding that a cash basis taxpayer would report it when available to him/her. I'm speaking for tax purposes and not bookkeeping, but since the interest will not be paid until the end of the note, I personally would not report it until it is paid.

        LT
        Only in government or politics is a "cut in spending" really an increase. It's just not as much of an increase as they wanted it to be, therefore a "cut".

        Comment

          #5
          If the notes

          are with non stockholders it is income when received. If the notes are with a stockholder and interest is not received it is DEEMED recieved and recorded in each year.

          Comment

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