Abstract
This article deals with the inconsistent approach adopted by the U.S. tax system with regard to the administrative cost component of interest and its typical substitute "service charge." The combined effect of the general policy of nonbifurcation of the interest components with the formal requirements by which "interest" is recognized has distorted the tax system.
The following discussion deals with three applications of the suggested approach: reimbursement of a lender's expenses (Part II); commitment fees (Part III); and interest swaps (Part IV). Part IV does not deal with other interest notional contracts aimed at either reducing the borrowing cost of the parties or hedging (e.g., caps, floors, and collars). Nevertheless, this discussion may be relevant, subject to some modifications, to the tax analysis of such interest notional contracts.
Recommended Citation
Beer, Yishai
(1994)
"The Taxation of Interest Swaps and the Financial Service Charge: Toward a Consistent Approach,"
Florida Tax Review: Vol. 1:
No.
1, Article 18.
Available at:
https://scholarship.law.ufl.edu/ftr/vol1/iss1/18