The "loan" I'm referring to is the fact that he got money from a source and didn't claim it, effectively underreporting his income, so the amount he still owes to CA is treated like a loan/money owed since 2009 when he was supposed to pay it. So yea, the amt owed to CA constitutes as interest bearing funds, not really the amt from the job.
As far as the IRS, they probably have one of the lowest interest rates of any tax jurisdiction, because it's the same rate they have to pay out to citizens on money owed to them after the due date. However, if you owe the IRS interest, they don't have to "report" that as income, but say you get $50 extra on a late refund, you'll get an IRS issued 1099INT and you will be claiming that $50 on that year's tax return. Granted $50 will generate hardly any tax, but if you don't include it, you will get a CP2000 letter a year or two later saying your return doesn't match the docs issued to you. Then you will have to pay tax on that interest you never requested, plus pay interest on that interest.
