On January 2, Chaz transfers cash of $81,800 to a newly formed corporation for 100% of the stock. In its initial year, the corporation has net income of $20,450. The income is credited to its earnings and profits account. The corporation distributes $6,135 to Chaz.

Assume instead that Chaz transfers to the corporation cash of $40,900 for stock and cash of $40,900 for a note of the same amount. The note is payable in equal annual installments of $4,090 and bears interest at the rate of 6%. No distributions are made during the year to Chaz. However, at the end of the year, the corporation pays an amount to meet the loan obligation(i.e., the annual $4,090 principal payment plus the interest due).

Determine the total amount of the payment and its tax treatment to Chaz and the corporation.

The corporate payment to Chaz totals $................. Chaz has interest of $ and a note repayment of $.................. of which $ ................is taxable to Chaz. The corporation has a deduction of $...............