Laura makes the following interest-free loans during the current year. Discuss the income tax implications of each loan for both Laura and the borrower. In all cases, the applicable federal interest rate is 8%.
a. On April 15, Laura loans $30,000 to her brother Hyun to pay his income taxes. Hyun is financially insolvent and has no sources of investment income.
b. On March 1, Laura loans $12,000 to her secretary, George. He uses the money as a down payment on a new house.
c. On July 1, Laura loans her father $150,000. He uses the money to buy a franchise to open a yogurt store. He makes $5,000 on the yogurt store during the current year.
d. On January 1, Laura loans $70,000 to Lotta, Inc. She is the sole shareholder of Lotta, Inc., which is organized as a corporation.