The Purpose of the Tax Rules That Apply to Below-Market

question 30

Multiple Choice

The purpose of the tax rules that apply to below-market loans between family members is to:

• A)Discourage loans between related parties.
• B)Prevent shifting of income among family members.
• C)Prevent gifts from being disguised as bad debt expenses.
• D)Prevent gift tax avoidance.
• E)None of these is true.

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Definitions:

Investment

Investment pertains to the allocation of resources, such as capital or time, with the expectation of generating an income or profit.

Services

Economic activities that provide intangible products, such as healthcare, education, and financial services, to consumers.

Durable Goods

Items or products that are expected to last for several years under normal use, such as appliances and vehicles.

Nondurable Goods

Items with a short life span which are consumed or used up quickly, such as food and most consumer packaged goods.