Home      Login

Abstract: 

The IRS’s Large and Mid-Size Business Division has issued a new directive, LMSB-04-0110-003, concerning interest on non-accrual loans. In light of soaring numbers of non-performing loans, the topic is once again high on the IRS’s priority list. The interplay of the required tax treatment of payments on non- performing loans and federal banking regulations and the accounting standards is complex—and may seem at cross purposes. The Service has now issued directive LMSB-04-0110-003 noting that banks that have not made a Section 166 conformity election will be subject to scrutiny with respect to interest accrual and interest applied to principal on non-performing loans, and providing guidance for tax examiners reviewing banks holding these loans in their portfolios.

Keywords: LMSB-04-0110-003; non-accrual loans; troubled loans; interest applied to principal; Coordinated Issue

Affiliations:  1: Perry-Smith LLP; 2: Perry-Smith LLP.