K-1 Repayment of loans from shareholder

[ILLMAS]

TP has borrowed money from his S-corp and also has loaned money to it over the years, so on the balance sheet we have due from shareholder and due to shareholder, in 2012 they wanted to clean up the BS and have them offset each other. Now on the K-1, line 16, E, it appears as if the shareholder (reduced his basis) was repaid X amount of dollars, but technically he didn't. He received no cash, and I just want to make sure this doesn't get him in trouble.

Thanks

[jainen]

>>it appears as if the shareholder (reduced his basis) was repaid X amount of dollars, but technically he didn't<<

No, technically he DID. When he loaned money to the corporation he increased his basis, so now he can't keep that higher basis when he is repaid, even if the repayment is in the form of debt relief. On the other hand, corporate debts owed, even to a shareholder, did not decrease his basis like they would in a partnership, so cancelling those loans can not bring his basis back up.

Frankly it looks like he artificially increased his basis with offsetting loans so he could deduct losses. Now he is on the other end of the same deal.

And frankly, I think he knows all about it. He's just hoping you don't. "Clean up the BS" indeed!

[RobG]

When loan payments are made both to and from (i.e. new funds loaned) a shareholder within the SAME tax year, am I correct you just report on that year's K-1 only (/ all) the payments TO the shareholder (versus combining the debits and credits into one amount; ignoring new funds loaned)?

[ILLMAS]

Wow, I was 3 years younger when I posted that questions back in 2013, unfortunately it reminds me I am 3 years older since that post, thanks.