Mandatory interest on owner-carried loan?
I'm preparing to purchase a business and the owner wants a flat purchase price and will charge zero interest on the loan. Her attorney told her she is REQUIRED by federal law to charge a minimum 2.75% interest or else we'll get hit with some kind of tax penalty.
The only thing I can think of is that I would take a hit because it might look as if I gained the business immediately, thereby incurring the entire value as a gain rather than purchasing it over a 5-year period. Does this make sense?
The owner is adamant she doesn't want to charge me interest, but her back is against the wall. This deal is still a dream opportunity at 2.75% interest, but we don't want to pay interest if we don't have to. Can anyone enlighten me on what her attorney is talking about?
