Tomohiro Corporation Loans $50,000 Interest-Free for One Year to Matt

Multiple Choice

Tomohiro Corporation loans $50,000 interest-free for one year to Matt, a shareholder.Matt uses the loan to pay for personal debts.Assume that the applicable federal rate is 4 percent.What are the tax consequences of this loan to Tomohiro and to Matt?

A) No tax consequences to either Tomohiro or Matt
B) No income to Matt, $2,000 deduction for Tomohiro
C) $2,000 income to Matt, no income to Tomohiro
D) $2,000 income to Matt and $2,000 deduction for Tomohiro
E) $2,000 income to Matt and $2,000 income to Tomohiro