Related-Party Loan Collection
Friend loans, family loans, and the IRS gift presumption — how to collect or document for write-off
The Uncomfortable Truth About Personal Loans
You lent money to someone you trust — a friend, family member, business associate, or romantic partner. Now they won't pay it back. Maybe they're avoiding you. Maybe they're claiming it was a "gift." Maybe they just say they'll "get to it."
I handle these cases regularly. They're emotionally complicated but legally straightforward if you have the right documentation — and a demand letter helps create that documentation even after the fact.
The IRS Gift Presumption
When money flows between related parties (friends, family, romantic partners), the IRS may presume the transfer was a gift — not a loan. This matters for two reasons:
- Collection: If it's a gift, there's nothing to collect — you gave it away
- Tax deduction: If it's a gift, there's no IRC §166 bad debt deduction — gifts aren't debts
How I Rebut the Gift Presumption
Even without a formal promissory note, I can build a case that the transfer was a loan:
| Evidence Type | What It Proves |
|---|---|
| Text messages discussing repayment | "I'll pay you back by March" = acknowledgment of debt |
| Partial payments made | Any repayment proves borrower knew it was a loan |
| Bank transfer memo lines | "Loan" or "Lend" on the transfer description |
| Interest payments or discussion | Interest = loan, not gift |
| Borrower's financial distress at time of transfer | Requesting money due to need implies loan, not gift |
| Demand letter response | If borrower doesn't dispute the debt, it's an admission |
Common Scenarios
Pricing
Lent Money to Someone Who Won't Pay Back?
I'll send the demand letter, negotiate repayment, or document for tax deduction.
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