676 / What is the applicable federal rate and under what circumstances is it employed?
The applicable federal rates are determined monthly by the IRS (and published in a revenue ruling). The various rates – short-term, mid-term and long-term – are based on the average market yield on the outstanding marketable obligations of the United States with maturity periods of three years or less, more than three but not more than nine years, and over nine years, respectively.1
To determine the appropriate AFR applicable with respect to below-market loans, see Q 663 and Q 892. To determine the appropriate AFR with respect to deferred rent, see Q 7831.
In the case of any sale or exchange in which a debt instrument is involved, the applicable federal rate will be the lowest three-month rate in effect for any month in the three-month period ending with the first calendar month in which there is a binding written contract.2