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1997-2013 Daniel
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*(Current through December 2013)*

Under section 7872 of the Internal Revenue Code, there is interest imputed to "below market loans" between family members, employers and employees, corporations and shareholders, and in other situations. For a loan payable on demand, the short-term applicable federal rate would apply for the purpose of calculating any foregone interest, and because that rate can change monthly, the calculation of interest would have to be month-by-month, with monthly compounding of accrued interest.

To simplify calculations of interest for demand loans, I.R.C. section 7872(e)(2) allows the use of a "blended annual rate" for demand loans with a fixed principal amount outstanding for an entire calendar year. According to Rev. Rul. 86-17, 1986-1 C.B. 377, the blended annual rate is the product of (a) one half of the January semiannual short-term applicable federal rate times (b) one half of the July semiannual short-term applicable federal rate. (The actual formula is (1+a/2)*(1+b/2)-1, where "a" is the January rate and "b" is the July rate.) This blended annual rate is published by the Internal Revenue Service in a Revenue Ruling every June, based on the relevant rates for January and July of that year.

The following is a chart of the blended annual rates from 1985 to the present. For the interest rates to apply to low-interest (or interest-free) demand loans before 1985, see Rev. Proc. 85-46, 1985-2 C.B. 507.

Blended Annual Rates

under Section 7872

Calendar Year |
Blended Annual Rate |
---|---|

1985 |
9.24% |

1986 |
7.77% |

1987 |
6.81% |

1988 |
7.72% |

1989 |
8.94% |

1990 |
8.19% |

1991 |
7.11% |

1992 |
4.98% |

1993 |
4.16% |

1994 |
4.80% |

1995 |
6.58% |

1996 |
5.77% |

1997 |
5.85% |

1998 |
5.63% |

1999 |
4.94% |

2000 |
6.24% |

2001 |
4.98% |

2002 |
2.78% |

2003 |
1.52% |

2004 |
1.98% |

2005 |
3.11% |

2006 |
4.71% |

2007 |
4.92% |

2008 |
2.80% |

2009 |
0.82% |

2010 |
0.59% |

2011 |
0.40% |

2012 |
0.22% |

2013 |
0.22% |

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