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Non-Interest-Bearing Promissory Note

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If an employee receives a non-interest-bearing promissory note from his employer as compensation, how much income does that employee have to include in his income?

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Solution Summary

This solution explains the amount of income an employee would include when receiving a non-interest bearing promissory note from an employer. A thorough discussion is provided.

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The main factor in this scenario is that the note was received as a form of compensation. The note wasn't given as any type of personal promise between company and owner, or for any other reason. The promissory note was issued as a direct form of compensation. The fact that it's not an interest bearing note only matters for the compensation recorded each year due to how we'd handle it if it was an interest bearing note. If it was, the amount of interest collected each year would have to be recognized by the employee as taxable income, even though the amount of the note hasn't yet been collected. In both cases, the ...

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