The Robin Corporation is owned as follows:
|
Isabelle |
26% |
|
Peter, Isabelle’s husband |
19% |
|
Sonya, Isabelle’s mother |
15% |
|
Reggie, Isabelle’s father |
25% |
|
Quinn, an unrelated party |
15% |
Robin is on the accrual basis, and Isabelle and Peter are on the cash basis. Isabelle and Peter each loaned the Robin Corporation $40,000 out of their separate funds. On December 31, 2012, Robin accrued interest at 7% on both loans. The interest was paid on February 4, 2013. What is the tax treatment of this interest expense/income to Isabelle, Peter, and Robin?