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Q.Why all Promissory Notes should carry at least some interest?
A.The Internal Revenue Service (IRS), if it learns about your interest-free loan, can "impute" interest on the loan. In other words, the IRS will assume you have earned interest on the "interest-free" loan and in turn require you to report it as taxable income.
For most individual loans, however, there is an out. The imputed, but unchrged, interest can be treated (or reclassified) as a tax-free gift if the total amount given to the borrower is less than the annual gift-tax exclusion (presently 12,000).
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