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I have heard that these are legally stigmatised/frowned upon, and subject to various different types of restrictions, I think mainly for tax reasons.

But a recent answer describes this as a seemingly legitimate organisational tactic: Why would a 501(c)(3) nonprofit organization run its major operations in an LLC?

Is there anything wrong with such a loan that can maybe more realistically be seen as an intended gift? And what legal ramifications do they carry?

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A below market interest rate loan is deemed to be a gift equal to the interest rate implied in law (under 26 U.S.C. § 7520, which is 120% of the Applicable Federal Rate, or the Applicable Federal Rate, established at 26 U.S.C. § 1274(d), depending upon the circumstances) from the lender to the borrower.

When the borrower is a 501(c)(3) organization that deemed gift of below market rate interest is a charitable gift deductible from the lender's income under 26 U.S.C. § 170.

A zero interest loan may also calculated to comply with the private foundation rules by preventing a funder of a private foundation from receiving personal benefit from the private foundation.

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    And if the loan is forgiven, then the entirety of the loan is, depending on the circumstances, considered either income and/or a gift.
    – Acccumulation
    Commented Nov 7, 2023 at 3:17

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