If interest is provided for in loans between related parties, there is no imputed interest, as a gift loan does not result.

Question

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Even if there is a relationship between parties, the IRS requires that interest be charged on loans to avoid imputed interest. Failure to charge interest can result in tax consequences such as the lender being required to report imputed interest as income and the borrower being required to deduct the imputed interest on their tax return.

If Interest Is Provided for in Loans Between Related Parties