The proceeds of a loan do not count as income to the borrower as long as a bona fide loan agreement exists. Written and oral loan agreements must meet the criteria in SI 01120.220C to be bona fide. In addition, oral loans must be legally binding under State law.

Assume that oral loan contracts which meet all the conditions listed below are legally binding for States in the Dallas Region.

1. 1. 

   The signed statements of the parties required by SI 01120.220F.1. agree in their description of the loan contract.

2. 2. 

   The signed statement of the borrower acknowledges a present intent to comply with the loan agreement described in writing.

3. 3. 

   Neither party to the agreement is a minor or has been declared legally incompetent.