On July 1, Frank loans his brother Matt $200,000. The loan is evidenced by an interest-free demand note. The loan is still outstanding on December 31. The applicable interest rate is 12%. Frank is treated as having made a gift of

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Frank is treated as having made a gift of the forgone interest, not the principal amount of the loan. The forgone interest for 6 months (July to December) on $200,000 at 12% annually is $12,000 (200,000 * 12% * 6/12).

On July 1, Frank Loans His Brother Matt $200,000