Can I lend $50k to a person without IRS penalites?

[xmasbaby0]

Penalties?   No, there are not penalties for loaning money.   If you are truly loaning money, then you are expecting to be re-paid and get that money back.  You must enter the interest you receive as taxable income, since you are expected to get that money back with interest if it is a loan.   Interest paid to you is taxable income.

 If you are giving them the money as a gift, that is different---so are you loaning --or giving---the money to the other person?

  Money that you give as a gift is not deductible to you, nor is it taxable to the person who receives the gift.   However, there are limits for the amount of the gift you can give to one person without having to complete a form call a Form 709 for the IRS.  If you GIVE a gift of more than $18,000 in 2024 to one person, you are required to mail in Form 709 to report the gift.  You will not owe tax on the gift.

[Opus 17]

Yes, but there are rules.

The IRS expects business to be conducted in a businesslike manner, and that includes charging interest on loans.  You must charge at least the applicable federal minimum rate.  For example, for a short term loan made in August, with interest calculated monthly, the applicable minimum rate is 4.84% (APR).  

https://www.irs.gov/applicable-federal-rates

If you charge the minimum rate or more, and collect interest, you report the interest as taxable income on your tax return.  (You can collect interest monthly, or yearly, or at the end of the loan, but you must charge at least the AFR and you must report it as income.)

Even if you don't charge interest, you must report and pay tax on the interest you could have charged if you charged the AFR.  This is called imputed interest, and is part of that "conduct your affairs in a businesslike manner" concept.  So for a $50,000 loan, the IRS will want to see that you are reporting at least $201.66 of interest for the first month, with the remaining month's interest depending on that month's AFR and the remaining balance of the loan (assuming the balance is being paid off.)  

Of course, this is on the honor system, and only about 1% of taxpayers are audited.  

[Mike9241]

a loan with a below-market interest rate is covered by iRC 7872,. the interest rate to be charged depends on the type of loan

(2)Applicable Federal rate
(A)Term loans
In the case of any term loan, the applicable Federal rate shall be the applicable Federal rate in effect under section 1274(d) (as of the day on which the loan was made), compounded semiannually.

(B)Demand loans
In the case of a demand loan, the applicable Federal rate shall be the Federal short-term rate in effect under section 1274(d) for the period for which the amount of forgone interest is being determined, compounded semiannually.

https://www.law.cornell.edu/uscode/text/26/7872