Problem:
Indicate whether the imputed interest rules should apply in the following situation. Assume all the loans were made at the beginning of the tax year unless otherwise indicated.
a) Mike loaned his sister $90,000 to buy a newhome. Mike did not charged interest on the loan. The Federal ratewas 5%. Mike's sister had $900 of investment income for theyear.
b) Sam's employer maintains an emergency loanfund for its employees. During the year, Sam's wife was veryill, and he incurred unusually large medical expenses. He borrowed$8,500 from his employer's emergency loan fund for sixmonths. The Federal rate was 5.5%. Sam and his wife had noinvestment income for the year.
c) Jody borrowed $25,000 from her controlledcorporation for six months. She used the funds to pay herdaughter's college tuition. The corporation charged Jody 45interest. The Federal rate was 5%. Jody had $3,500 of investmentincome for the year.
d) Kait loaned her son, Jake, $60,000 for six months.Jake used the $60,000 to pay of college loans. The Federal rate was5%, and Kait did not charge. Jake any interest Jake had dividendand interest income of $2,100 for the tax year.
Note: Be sure to show how you arrived at your answer.