90% accounting question 10% tax question

[ILLMAS]

TP refinanced her home in late 2015, she had the monies transferred into her business bank account (according to her, because her bank is a community bank with old technology), she's been taking out money little by little to rehab an investment property not related to her business.  Here is my accounting question, the checking account balance at 12/31/15 was $200,000 +, TP does not know exactly how much of the balance belongs to the business, but says, it's probably less then $2K, I am going to post an adjustment for the difference against loans from shareholder to tie to the bank statement, would you agree this is the proper route?  Also, I am going to post another entry to recognize accrued interest expense on the loan, even though the loan was not really a loan, and have her report the interest on her tax return.  Do you agree or suggest another something else?

Thanks

 

MAS

[RitaB]

I think the company will eventually have to write her a check for the imputed interest if you want books to eventually be right.  Or just carry the payable forever.  Buy you already know the books will never be right with a person that operates like this.  Good luck to you.  I really, really hate this type client.  Wants liability protection for having a separate entity then mixes everything up.

I'd ask her what's stopping her from moving the personal mortgage loan funds to her personal account.  Surely her old bank can manage a check.

[BHoffman]

What kind of entity is the business?  1120, 1120S, Sch C?  

[ILLMAS]

1120s

[BHoffman]

Then I agree with your plan, but also with RitaB that the TP should move the money out of the business account ASAP.

[Lion EA]

Or, keep two sets of books on that bank account:  her business books and books detailing the real estate business.  The loan proceeds she deposited were not income to her business.  Move the proceeds, and any interest earned and the net of all the RE transactions, out of her biz account now.  After the move, your original biz books will match the bank account, and your RE books will match her new RE bank account.  And, remind her how co-mingling funds can wipe out the liability protection she thinks she has in a corporation.

[Abby Normal]

Don't put it as a loan from the shareholder. Just put it in paid in capital. It avoids the imputed interest problem and she can take it out whenever she wants as a nontaxable distribution... unless she uses up the stock basis with losses. And even then it's just capital gains.

I never do debt basis on S corps.