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Parent loans child $1 million interest-free at a time when the Section 7872(f)(2) applicable...

Question:

Parent loans Child $1 million interest-free at a time when the Section 7872(f)(2) applicable federal rate is 10 percent. Parent has a right to call the loan at any time Parent wishes and does so at the end of a year. Has Parent made any gift to Child?

Interest Free Loans:

Normally, banks and credit unions charge the maximum interest rate they possibly can on loans to the public. This is because these institutions are trying to make as much profit as possible. Families sometimes break this rule by giving loans to family members with low or no interest rates. Loans bigger than $10,000 with lower than market rates can be subject to tax consequences.

Answer and Explanation:

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