There's nothing particular about this that would trigger an audit, although we don't know all the triggers. In the unlikely event someone was audited, this is what the IRS would say:
Either it is a bona fide gift, or a loan. If it's a gift, the giver must file a gift tax return if the amount is more than $16,000, although actual payment of gift tax is almost never required. A gift has no expectation of repayment.
If it's a loan, then the IRS position is that taxpayers must conduct business in a businesslike manner. The lender must charge at least the IRS minimum interest rate, and report the interest received as taxable income. If the lender doesn't charge interest, they must still report imputed income equal to the amount of interest they would have received if they had charged interest. The applicable federal interest rate is variable and changes monthly, if the loan was made in November 2022, the rate would be 3.85%.
Now potentially, if the lender did charge interest, they could give that interest back to the homeowner (as a birthday gift, for example) as long as the lender reported the interest as taxable income first. Either way, the IRS is going to want to see the lender reporting either their actual interest income or the interest they would have received if they charged the minimum allowable interest rate.
This is what the IRS wants, at any rate. Most people are never audited.
