- 11 -
right to use money is plainly a valuable right, readily
measurable by reference to current interest rates”.6 See also
Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 648 (1980);
Rev. Rul. 81-160, 1981-1 C.B. 312; cf. sec. 7872. It is also
clear that the right to use borrowed money is interrelated with
its corresponding interest cost.
Interest represents the cost of using borrowed money. See,
e.g., Snyder v. Commissioner, 93 T.C. 529, 546 (1989). For
example, in Albertson’s, Inc. v. Commissioner, 95 T.C. 415, 421
(1990), affd. 42 F.3d 537 (9th Cir. 1994), we stated:
Interest is “the amount which one has contracted
to pay for the use of borrowed money.” (Emphasis
added.) Old Colony Railroad Co. v. Commissioner, 284
U.S. 552, 560 (1932). Interest is also commonly
defined as “compensation for the use or forbearance of
money.” (Emphasis added.) Deputy v. du Pont, 308 U.S.
488, 498 (1940). Interest is the equivalent of “rent”
for the use of funds. Dickman v. Commissioner, 465
U.S. 330, 339 (1984). Implicit in these three
definitions of interest is the concept that interest is
a payment for the use of money that the lender had the
legal right to possess, prior to relinquishing
possession rights to the debtor. [Fn. ref. omitted.]
Thus, there is a correlative relationship among the right to use
borrowed money, interest paid for the use of borrowed money, and
the intangible value of this right to use borrowed money. For
example, if current market rates of interest fluctuate to a rate
6In Dickman v. Commissioner, 465 U.S. 330, 338 (1984), the
U.S. Supreme Court held that the interest-free loan of funds was
a transfer of property; i.e., a gift of the reasonable value of
the use of the money lent, for purposes of the gift tax.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011