Harold and Jeanette made the following interest-free loans to their children during 2020: $10,000 to Alex for a down payment on a house

Imputed interest comes into play when someone makes a "below-market" loan. That's a loan with an interest rate below a certain minimum level set by the government, known as the Applicable Federal Rate, or AFR here it is 6% per annum

The rules for below-market loans does apply to Gift loans—loans between friends and family members other than spouse

subject to below expections

1.A loan of $10,000 or less is exempt, as long as the money isn't used to buy income-producing assets.

2.The second exception applies to loans of $100,000 or less. The imputed income rules apply, but the lending parent can report imputed interest at the lower of the applicable federal rate or the borrower’s net investment income for the year.

If the borrower doesn’t have much investment income, the above  exception can significantly reduce the amount of imputed income that’s reported.

Here harold and Jeanette made interest free loan to their cildren in the year 2020

As long as they don’t make other gifts to their children in the year 2020 that put them over the annual gift tax exclusion amount ($30,000 on joint gifts by a married couple), there won’t be any gift tax consequences.

The annual exclusion applies to gifts to each donee. In other words, the annual exclusion is $15,000. and for couple it is $30,000 per children irrespective of number of children

Below is the amount of imputed incterest income taht harold and jeanette must report due to transaction occured in 2020

Total imputed interest for the couple as whole is $5650

But Since each imputed Interest amount calculated per children does not exceed $30000 (since couple ) Everything imputed interest amount is tax free and no need to pay tax on those imputed interst amount of $5650 calculated as a whole