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

question 102

Essay

Albert and Elva each 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 6% (same as the Federal rate) and a maturity date of one year. The loan is made at the beginning of 2013.
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?

---

Definitions:

Ladder Diagram

a graphical representation used in programming PLCs that emulates the structure of electrical relay logic to control processes.

Logic Represented

Describes how logical states or operations are symbolized or implemented in programming or circuit design.

Ladder Logic

A graphical programming language resembling electrical relay logic, used for developing programs in programmable logic controllers (PLCs).

Output

The result or effect of a process, often referring to the signals or data sent by a system to actuate devices or display information.