South-Western Federal Taxation: Comprehensive Volume

lizabeth 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.

Borrower

Richard Woody Irene

Amount

$ 5,000 8,000 105,000

Borrower's Net Investment Income

$800 600 -0-

Purpose of Loan

Gift Purchase stock Purchase residence

Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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