Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the year.

What are the effects of the imputed interest rules on these transactions? Compute
Elizabeth's gross income from each loan:
a. Richard
b. Woody
c. Irene

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Borrower's Net Borrower Amount Investment Income Purpose of Loan Richard Woody Irene $5,000 8,000 105,000 $800 600 Gift Purchase stock Purchase residence