Related-Party Loan Collection

Friend loans, family loans, and the IRS gift presumption, how to collect or document for write-off

California Bar #279869

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

Without documentation, you may lose twice: Can't collect the money AND can't write off the loss on your taxes.

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

The demand letter itself is evidence. If I send a demand letter and the borrower responds by saying "I can't pay right now" or "can I do a payment plan?", they've just acknowledged the debt. If they say nothing, the unrebutted demand supports a loan characterization.

Common Scenarios

Friend-to-Friend Loan ($35,000): Client lent money for a restaurant startup. No formal note, just a text saying "I'll pay you back within a year plus 5%." After 18 months of silence, I sent a demand letter referencing the text messages and partial payments made. Borrower retained counsel and agreed to a 12-month repayment plan within 3 weeks.

Family Loan → Tax Deduction ($60,000): Client lent money to a sibling's struggling business. The business failed and sibling filed Chapter 7. I sent the demand letter (to establish collection effort), then prepared the IRC §166 documentation package. CPA claimed the deduction. The demand letter was the critical document, without it, the IRS could have denied the deduction by claiming it was a gift.

Pricing

$1,200

Demand letter

Collection + gift presumption rebuttal

$1,200-750

IRC §166 series

2-3 letters + CPA package

$1,250

Pro se filing setup

Small claims or civil

Want me to write it and send it?

I take a business or commercial dispute and write the demand myself, on my letterhead, then handle delivery and read the response you get back.

Request the $1,200 package

Attorney demand on my letterhead, supporting chronology and damages calculation, certified mail plus email delivery, and review of their first response. Sergei Tokmakov, California Bar #279869.

Lent Money to Someone Who Won't Pay Back?

I'll send the demand letter, negotiate repayment, or document for tax deduction.

Email owner@terms.law