The Application of Code § 7872 to Interest-Free or Below-Market

question 29

Multiple Choice

The application of Code § 7872 to interest-free or below-market loans has certain tax consequences for the lender and borrower.They include

• A)The borrower may be allowed an itemized deduction for the interest hypothetically paid to the lender.
• B)The lender is not required to report the hypothetical payment as interest income until the loan is repaid.
• C)The borrower treats the hypothetical payment as earned income.
• D)The lender is deemed to have made a completed gift of the loan amount.

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