How can a family loan be protected from IRS collection actions?

To ensure a family loan is recognized as a legitimate debt and protected against IRS collection, it must be properly documented. This includes:
– A promissory note stating the terms of repayment,
– A security agreement securing the debt with property, and
– Filing a UCC-1 financing statement or similar lien with the appropriate agency.
Without this formal documentation, the IRS may treat the loan as a sham and ignore the family member\’s claim as a creditor.