Common use of Election to use external rate Clause in Contracts

Election to use external rate. (1) In general. An eligible taxpayer may elect to use the highest applicable Federal rate (AFR) under section 1274(d) in ef- fect during the computation period plus 3 percentage points (AFR plus 3) as a substitute for the weighted aver- age interest rate determined under paragraph (c)(5)(iii) of this section. A taxpayer that makes this election may not trace debt. The use of the AFR plus 3 as provided under this paragraph (e)(1) constitutes a method of account- ing. A taxpayer makes the election to use the AFR plus 3 method by using the AFR plus 3 as the taxpayer’s weighted average interest rate, and any change to the AFR plus 3 method by a taxpayer that has never pre- viously used the method does not re- quire the consent of the Commissioner. Any other change to or from the use of the AFR plus 3 method under this para- graph (e)(1) (other than by reason of a taxpayer ceasing to be an eligible tax- payer) is a change in method of ac- counting requiring the consent of the Commissioner under section 446(e) and § 1.446–1(e). All changes to or from the AFR plus 3 method are effected on a cut-off basis.