Under the imputed interest rules, the taxpayer who makes a below-market loan may be required to recognize income he or she did not actually receive. For example, assume that Christiana loans $200,000 to Max, her son to start a business (income-producing property). Christiana does not charge interest because Max needs the funds to operate a struggling startup business. Why should Christiana be required to pay tax on the interest she did not collect? On one hand, she received no interest income On the other hand, interest would have been charged by Christiana in an arm's length loan made to any other borrower or by any other lenderon a loan to MaxChristiana's choice not to charge interest is really an indirect gift to Max Should Christiana be able to avoid tax on the income she assigned to Max? This type of income is sometimes referred to as phantom income