Final answer:
The imputed interest rules do apply to a gift loan of less than $100,000 when the donee's net investment income exceeds $1,000, potentially creating tax obligations on income that may not actually be received, akin to how taxes are levied on nominal interest regardless of inflation rates.
Step-by-step explanation:
The main answer to the student's question about the imputed interest rules for a gift loan of less than $100,000 is that these rules do apply when the donee has net investment income of more than $1,000. Imputed interest is a concept where the IRS treats loans with no interest or below-market interest rates as if they had been issued with market interest rates. This means that if you lend money without interest or at a rate below the market rate, the IRS may calculate a nominal amount of interest as income to you, and the recipient of the loan may also be considered to have received this income and might be subject to tax on it.If we look at similar situations, such as when ordinary people can benefit from the redistributions of inflation, or when they are taxed on nominal interest without considering inflation, we can recognize that the IRS is concerned with the potential for tax avoidance through transactions that don't reflect the market's normal conduct.For example, if someone invests $10,000 at a 5% nominal interest rate, they are taxed on the $500 interest received, irrespective of the inflation rate. If inflation is high, the real interest received could be much less, or even negative, yet taxes are levied on the nominal gain. Taxpayers are similarly affected in the case of gift loans, where imputed interest can result in tax consequences even if no interest is paid.