Question: Zach is an executive with ROYAL Tires. At the beginning of this year the corporation loaned Zach $50,000 at an interest rate of one percent. Zach would have paid interest of $2,500 this year if the interest rate on the loan had been set at the prevailing Federal interest rate. Zach used the funds as a down payment on a vacation home and during the year he paid $500 of interest to ROYAL. On December 31, ROYAL forgave the loan and remaining interest. What amount of gross income does Zach recognize from the loan this year? Please site or support answer with either section, paragraph of Internal Revenue Code,or Publication 17 or Treasury Regulation.