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

question 106

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 2016.
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:

Liberty of American Workers

The concept of freedom and rights within the workplace, historically tied to the labor movement's fight for fair wages, safe working conditions, and the right to unionize.

Gilded Age

A term for the late 19th century in the United States, marked by economic growth, political corruption, and social inequality.

Horizontal Expansion

The process by which a corporation acquires or merges with its competitors.

American Citizens

Individuals who have citizenship status in the United States of America, granting them specific rights, privileges, and responsibilities under U.S. law.