Stock in Tidwell Corporation is held equally by Stephanie, Maggie, and Tyler. Tidwell seeks additional capital to buy a valuable tract of land that will cost $6,000,000. Stephanie, Maggie, and Tyler propose to loan Tidwell $2,000,000 each, taking from Tidwell a $2,000,000 10-year note with interest payable annually at five points above the prime rate. Tidwell Corporation has current taxable income of $7,000,000. How are the payments on the notes treated for tax purposes? (Hint you do NOT need to know the prime rate to solve).
Answer -
Assumming that Tidwell Corporation is a partnership between Stephanie, Maggie and Tyler.
The payments on the notes to the partners by Tidwell Corporation will not come under the tax liability of the partnership i.e. Tidwell Corporation.
The payments made by Tidwell corporation to the partners will not qualify as a tax deductible expense .
The payments received by the partners will not be taxable at the hands of the partners receiving it.
Stock in Tidwell Corporation is held equally by Stephanie, Maggie, and Tyler. Tidwell seeks additional capital...
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