Parrott, Inc., a C corporation, is owned by Alfonso (60%) and Deanna (40%). Alfonso is the president, and Deanna is the vice president for sales. Parrott, Alfonso, and Deanna are cash basis taxpayers. Parrott encounters working capital difficulties, so Alfonso loans the corporation $810,000, and Deanna loans the corporation $540,000. Each loan uses a 5% note that is due in five years with interest payable annually. Determine the tax consequences to Parrott, Alfonso, and Deanna if the notes are classified as (a) debt and (b) equity.