Taxation of Individuals

In order for a transfer of funds to constitute a loan, the transferee must have an unconditional obligation to repay. Karns Prime & Fancy Food, Ltd. v. Commissioner.

Whether a transfer of fund constitutes a loan may be inferred from objective characteristics surrounding the transfer, including the presence or absence of a debt instrument, collateral, interest, repayments, and anything indicative of an enforceable obligation to repay. Karns Prime & Fancy Food, Ltd. v. Commissioner.

A bona fide loan requires both parties to have an actual, good-faith intent to establish a debtor-creditor relationship, which exists if the debtor intends to repay and the creditor intends to enforce the repayment. Fisher v. Commissioner.