With a family loan, the individual providing the money should be sure to charge an interest rate that reflects a fair market value, or the loan may become subject to federal gift taxes
. To avoid future strife with the IRS, Steve Pyrek, an IRS spokesperson, explains that entrepreneurs can use section 7872, subsection D of the IRS code for exact federal rules.
On the McCords' 1996 gift tax returns, the gifts' taxable values were based on the gross FMV transferred to the nonexempt donees ($6,910,933), reduced by the total Federal gift taxes
payable and the actuarially determined present value of their obligations for additional estate taxes under Sec.
Also, each annuity payment represents a gift to the mother, so Sue could be liable for federal gift taxes