Brad is the president of the Yellow Corporation. He and other members of his fam

Question

Brad is the president of the Yellow Corporation. He and other members of his family control the corporation. Brad has a temporary need for $50,000, and the corporation has excess cash.
he could borrow the money from the bank at 9%, and yellow is earning 6% on its temporary investments. Yellow has made loans to other employees on several occasions. therefore, brad is considering borrowing $50,000 from the corporations. He will repay the loan principal in two years plus interest at 5%. identify the relevent tax issues for Brad and the Yellow Corporation.

Explanation / Answer

Being Brad and his family control the corporation, This transaction might not be deamed an arms length transaction and would therefore be treated as a dividend payment rather than a loan. Also, with respect to the arms length tranaction, since the corporation would be charging 5% compared to the 9% the bank would charge him, the 4% difference could be treated as income.

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