How does the IRS set the Applicable Federal Rate for intra-family loans?

I think the IRS AFR is linked to the prime rate, but I have never been able to find out if it tied to it 100% or if they are other factors that the IRS uses to set the rate.

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  • 1 decade ago
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    Located a good article (Making an interest free loan to a family member or friend), here's an excerpt & the link:

    The AFR is very important, because it’s the minimum rate you can charge without creating unwanted tax “side effects.” The IRS publishes AFRs monthly in the Internal Revenue Bulletin. The relevant AFR for a particular loan is the one in effect for loans of that duration for the month the loan is made.

    http://www.april15.com/article_loans.html

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