How Can "Friendly" Loans Impact Your Tax Liabilities?

It is not uncommon for a related or “friendly” party to desire to make a loan at a lower interest rate than what is available in an arms-length transaction on the open market. This is often the case when loans are made between relatives, business owners and their businesses, and employers and their employees. However, if the lender does not charge enough interest, the transaction may give rise to unforeseen and unintended tax liabilities.