Homework Answers
Answer-:
a) Yes, this loan resulted in income to both party.
Pay more corporation will have an Income of $ 280 as interest Income and $ 3080 as imputed income(i.e. difference between actual income and market amount of interest on loan). However they will also be entitled for compensation deduction of $3080 under federal tax law.
Whereas in case of wally, he will have compensation income of $3080(i.e. amount of imputed interest)and will also not be eligible for deduction as the amount is used towards personnel purpose.
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