It's the worst of times for savers invested in interest-bearing accounts, but the best of times for qualified borrowers, who are enjoying record-low rates thanks to the Fed's policies. Times can be better still for shareholder-owners of closely held corporations fortunate enough to be sitting on a cash hoard. These shareholder-owners may be in the position to borrow money from their companies at super-low rates without running afoul of the IRS required interest rates.
Today's super-low interest rate environment has produced the lowest interest rates allowable by the IRS rules in recent memory. For example, for the month of October, the short-term and mid-term AFRs are .23% and .93% respectively. The long-term rate is 2.34% for monthly and quarterly compounding, 2.35% for semi-annual compounding, and 2.36% for annual compounding.
Thus, for example, a closely held corporation making a three-year loan to a shareholder-owner could charge just .23% interest on the loan and escape the imputed interest rules. For a mid-term loan of three to nine years, made in October, just .93% interest could be charged, and for a fifteen-year loan, the rate assuming monthly compounding could be 2.36%.
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