Applicable Federal Rate - AFR

An AFR is a composite of interest rates, useful for tax purposes, primarily when loans are being made to "close parties," i.e. family members.

If the interest rate on either short-, mid-, or long-term loans being proffered to family members is below this IRS minimum rate, then the IRS likely will consider the low interest rate as a gift rather than an actual loan. Whichever party has "borrowed" the money would then be subject to the very cleverly named "gift tax."

Taxes levied. Tears shed. Next time, Uncle Roger pays at least prime.