Payment-in-Kind Accruals (PIK)

Definition

Payment-in-kind interest that is added to a loan's principal instead of being paid in cash, so the balance, and future interest on it, grows until repaid at maturity or refinancing. Under the original issue discount rules, interest not payable unconditionally at fixed intervals of one year or less counts toward a debt instrument's original issue discount, which the holder must include in income as it accrues even though no cash is received^[1].

Federal law

A market and contract term. No Act of Congress defines it; the federal laws below apply as described.

1. Deficit Reduction Act of 1984 (Tax Reform Act of 1984), Pub. L. 98-369, div. A, § 41, 98 Stat. 494 (26 U.S.C. §§ 1272, 1273). Enacted the current original issue discount rules requiring accrual of discount into the holder's income (26 U.S.C. §§ 1272, 1273). Official text: govinfo.gov, U.S. Government Publishing Office.