Parrott, Inc., a C corporation, is owned by Alfonso (60%) and Deanna (40%). Alfonso is the president, and Deanna is the vice president for sales. All three are cash basis taxpayers. Late in 2018, Parrott encounters working capital difficulties. Therefore, Alfonso loans the corporation $810,000, and Deanna loans the corporation $540,000. Each loan is supported by a 5% note that is due in five years, with interest payable annually. Determine the tax consequences to Parrott, Alfonso, and Deanna for 2019 if:
a. The notes are classified as debt.
b. The notes are classified as equity.