Jake loaned his cousin, Arnold, $10,000 in March 2009 to open a cybercafe in Santa Barbara. Arnold signed a loan agreement to pay Jake 7% interest annually, with the principal due in 2012. Jake received his 2009 interest payment but did not receive any interest payment in 2010. In March 2011, Jake's father informs him that his cousin has filed for bankruptcy.
Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.