Intrafamily Loans

Intrafamilial arrangements labeled as loans have long invited special scrutiny from the IRS. In some cases, the Service has successfully established that the arrangement was not a loan but another type of transfer, such as a gift.

This article explores the gift tax consequences of an exchange of promissory notes between family members when interest rates have dropped from when the original or old note was issue to the present time when the new note is issued.

On February 22, 1984, the Supreme Court decided the case of Dickman v. Commissioner in which it held that a lender makes a transfer subject to gift tax by making interest-free demand loans of cash to a family member or a closely-held family…