L and R Each Want to Start Their Own Business

L and R each want to start their own business.L transfers $500,000 to his corporation for shares of stock and a note bearing 10 percent interest, the interest being payable in annual installments of $50,000 for 20 years.R transfers to his corporation $500,000 solely in exchange for stock.Both wish to receive $50,000 from their corporations at the end of the first year.L receives a $50,000 interest payment and R receives a $50,000 dividend.On their individual returns L and R will report ordinary income of $50,000, but only L's corporation can claim a $50,000 deductible expense.