Question: Cooper Corporation loans $200,000 interest free to Sandy, an employee. Sandy uses the loan to pay personal debts. Assume the applicable federal rate is 6%.
A. What are the loans tax consequences (both income and deductions) to Cooper Corporation and Sandy? Please show your work and explain your calculations.
B. Assume Sandy is a shareholder in Cooper Corporation (rather than an employee). What are the loan tax consequences to Cooper Corporation and Sandy? Please show your work and explain your calculations.