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Tax Classification of Stated Credit Card Interest  


Author:  Joseph C.  Mandarino.


Source: Volume 27, Number 03, January/February 2014 , pp.45-51(7)




Journal of Taxation and Regulation of Financial Institutions

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Abstract: 

One of the unique features of credit cards—grace period interest—creates considerable tax uncertainty. This article focuses on the tax classification of credit card interest from the perspective of card issuers or holders of credit card receivables. The author concludes that such interest does not meet the definition of “qualified stated interest” and therefore should be governed by the original issue discount (OID) rules, but notes that since the IRS’s position is unclear the better course of action may be to take a global OID election, which would moot the issue and allow credit card issuers to treat stated interest as OID.

Keywords: tax classification; credit card receivable; grace period interest; OID; QSI; global OID election

Affiliations:  1: Stanley, Esrey & Buckley LLP.

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