Both Albert and Elva Own 50% of the Stock of Eagle

question 21

Essay

Both Albert and Elva own 50% of the stock of Eagle, Inc. a C corporation). To cover what is perceived as temporary working capital needs, each shareholder loans Eagle $200,000 with an annual interest rate of 3% same as the Federal rate) and a maturity date of one year. The loan is made at the beginning of 2019.
a. What are the tax consequences to Albert, Elva, and Eagle if the loans are classified as debt?
b. What are the tax consequences to Albert, Elva, and Eagle if the loans are classified as equity?

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Definitions:

Sarcoplasm

The cytoplasm within a muscle cell, containing organelles, proteins, and the substances required for muscle contraction.

Sarcomere

The basic contractile unit of muscle fiber, consisting of actin and myosin filaments between two Z-lines in striated muscle cells.

T Tubule

Tubular extensions of the plasma membrane in muscle cells that facilitate the uniform contraction of the muscle by spreading electrical impulses.

Myosin

A protein that, along with actin, enables muscular contraction and movement in animal cells.