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The Taxation Of Interest -- Free Loans, James T. O'Hare

Vanderbilt Law Review

The dramatic rise in interest rates in the United States in the past few years has given added significance to the uncertain tax consequences of interest-free loans made between family members, between corporations and shareholders, and between affiliated corporations. Such loans can create a variety of tax problems depending on the relationship of the parties. An interest-free loan from one family member to another may constitute a gift equal in value to the use of the money loaned or even to the amount of the entire principal. A corporation that makes an interest-free loan to one of its shareholders not …