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The amount Jean True ultimately received on the payment date
(September 30, 1994) was equal to the $13,298,978 “amount
loaned”. Because the “present value” of $13,298,978 to be paid
up to 6 months in the future, without interest, is less than
$13,298,978, the deferred payment arrangement was a “below-market
loan”. Sec. 7872(e)(1)(B).
C. Gift Loan
Section 7872 applies to certain defined categories of below-
market loans. See sec. 7872(c)(1). One of these categories is
gift loans. See Sec. 7872(c)(1)(A).
A gift loan is defined as “any below-market loan where the
foregoing of interest is in the nature of a gift.” Sec.
7872(f)(3). As we said in Frazee v. Commissioner, supra at 589:
The question of whether the forgoing of interest is in
the nature of a gift is determined under the gift tax
principles of chapter 12. See sec. 7872(d)(2). Under
traditional gift tax principles, we look to whether the
value of the property transferred exceeds the value of
the consideration received, dispensing with the test of
donative intent. Therefore, a below-market loan will be
treated as a gift loan unless it is a transfer made in
the ordinary course of business, that is, unless it is a
transaction which is bona fide, at arm’s length, and
free of donative intent. * * * [Emphasis added.]
See also sec. 25.2512-8, Gift Tax Regs. We also note that
intrafamily transactions are subject to special scrutiny and are
presumed to be gifts. See Harwood v. Commissioner, 82 T.C. 239,
259 (1984), affd. without published opinion 786 F.2d 1174 (9th
Cir. 1986).
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