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[[I have been asked by a family member to hold an amount of money, less than $10K. I say, "hold"
because it is not technically a loan. This person is in an awkward domestic situation, no assets are
in this person's name, and if the situation deteriorates, the amount is the person's safety net.]]

And...if the other party to the domestic dispute has a good attorney, you could find youself in court defending your actions in "holding" these funds. So you really have issues that you need to address OTHER than tax issues. Make sure that you are on solid legal grounds before you try to help somebody "hide" assets from the courts. I'm not an attorney, so I don't know what problems you may be buying yourself. I'd suggest that you find out from somebody qualified to provide you with legal advice on this issue.

[[So...short-term, I put it in CDs. What is the tax status of this money?]]

I don't know if it was a gift of not. It doesn't sound like it. You have all intentions of returning these funds after the "dispute" is resolved. So it doesn't sound like a gift to me.

[[ I'm assuming that for IRS
purposes, it was a gift, not a loan, and that I am responsible for declaring any interest income. Must
I declare the gift itself as unearned income? regular income? not at all?]]

Regardless of WHAT it is, if you deposit the funds, any interest will be reported to you using your SS number. And IRS will be looking for that interest on your tax return.

[[Complication: On direction of the aforementioned person, I "loaned" a portion of the money
($1500) to another family member for closing costs on a new house. The debtor mailed me a letter
detailing terms and interest (18 months, slightly less than CD rate). Does this qualify as
"documenting the loan" for tax purposes? Do I include the interest as unearned income (or is there
some lower limit)?]]

If you are chargin interest, then you have to report the interest income as yours. If you are not charing interst, perhaps you should based upon the law.

[[ I'm afraid to ask this question of the IRS, so any advice or direction anyone can provide is greatly

I don't blame you. You've got a bunch of issues running around here. And your family "friend" better hope that you don't die with those funds in YOUR name and YOUR bank account. He or she may never see those funds again, since they will go to your beneficiaries (who may or may not be your family friend).

Oh...what a tangled web we weave when first we practice to deceive.

Just my thoughts...take 'em for what you paid for 'em.

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