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Abstract: 

This article, the last in a series reviewing various tax aspects of credit card transactions, focuses on the computation of interest income by the card issuer. Applying the income tax accounting rules to credit card receivables can be difficult, in part because of the lack of a fixed payment schedule. By modifying aspects of the original issue discount rules, Section 1272(a)(6) provides a methodology for computing interest income based on the monthly payment rate. As interpreted by the Tax Court, this approach provides a workable solution.

Keywords: original issue discount; qualified stated interest; contingent payment debt instrument; IRC Sec. 1272(a)(6); Capital One Financial Corp. v. Comm’r; bad debt; Rev. Proc. 2013-26

Affiliations:  1: Stanley, Esrey & Buckley LLP.