Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 75-12

1975-1 C.B. 62

Sec. 163
Sec. 461

IRS Headnote

Interest; loan discount; cash or accrual methods. A loan discount that is the agreed charge for the use of borrowed money is interest, under section 163 of the Code, deductible under the cash method of accounting when it is actually paid and under the accrual method of accounting when it accrues; I.T. 3298 superseded.

Full Text

Rev. Rul. 75-12 [fn1]

A loan discount, where the lender delivers to the borrower, an individual, an amount that is smaller than the face amount of the loan and the difference is the agreed charge for the use of borrowed money, is interest under section 163 of the Internal Revenue Code of 1954, and the year for its deduction depends upon the taxpayer's method of accounting. If the borrower uses the cash receipts and disbursements method of accounting, the discount is deductible by him only when he actually pays it. If the borrower uses the accrual method of accounting, the discount is deductible by him as it accrues. See Rev. Rul. 59-260, 1959-2 C.B. 137, and Rev. Rul. 68-643, 1968-2 C.B. 76, both of which relate to the year for deducting interest.

I.T. 3298, 1939-2 C.B. 164, is superseded, since the position stated therein is restated under the current statute and regulations in this Revenue Ruling.

[fn1] Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.