JerryH Posted March 9, 2008 Report Share Posted March 9, 2008 Where on 1040 does one report the income from a 1120 S repayment of loan to shareholder who now has a -0- basis due to prior yera losses? Quote Link to comment Share on other sites More sharing options...
zeke Posted March 9, 2008 Report Share Posted March 9, 2008 JerryH - I am having difficulty figuring why tp would have to report repayment of loan at all. Maybe interest. Better minds than ours will set us straight! Quote Link to comment Share on other sites More sharing options...
MJG CPA Posted March 9, 2008 Report Share Posted March 9, 2008 JerryH - I am having difficulty figuring why tp would have to report repayment of loan at all. Maybe interest. Better minds than ours will set us straight! If s-corp had prior losses, then loan basis could have been used to be able to deduct losses. Now that loan is being repaid, it would probably be treated as capital gain, same as an excess distribution - treated as a deemed sale of stock. Someone correct me if I'm wrong. Quote Link to comment Share on other sites More sharing options...
OldJack Posted March 9, 2008 Report Share Posted March 9, 2008 >>treated as a deemed sale of stock<< I agree with MJG if the loan amount was used to deduct losses below the taxpayers basis and the basis has not been restored with profits or contributions. You have to do a tax basis analysis from the individuals holding and not from the S-corp books. It could be the losses at the shareholder level were not actually deducted and as such were carried forward. Quote Link to comment Share on other sites More sharing options...
JerryH Posted March 9, 2008 Author Report Share Posted March 9, 2008 It's ordinary per this ruling, just can't find where they want it reported. Tp used the loan to get the loss in a prior year then got his $ back in following year. Loan was only for about 2 weeks. Thanks for replys. JerryH IRS Revenue Rulings Code Sec. 1376 -------------------------------------------------------------------------------- 26 CFR 1.1376-1: Adjustment to basis of stock of, and indebtedness to, shareholders; increase in basis of stock. A shareholder-creditor of a small business corporation derives ordinary income from the repayment of a loan made on open account to the extent that the repayments exceed his basis in the loan. REV. RUL. 68-537 An electing small business corporation, as defined in section 1371 of the Internal Revenue Code of 1954, repaid to one of its shareholders a loan made on open account. The shareholder's basis in the loan was reduced by the amount by which his share of the corporation net operating loss exceeded his basis in the corporation's stock. Held, the installments received by the shareholder in retirement of the loan must be allocated in part to a return of his basis in the loan and in part to income, but the income is ordinary income and not income from the exchange of a capital asset. See Joe M. Smith and Florence P. Smith et al v. Commissioner, 48 T.C. 872 (1967). The situation here involved is distinguishable from that in Revenue Ruling 64-162, C.B. 1964-1 (Part 1), 304, since in that Revenue Ruling the corporation had issued its shareholder a note as an evidence of the indebtedness and such note was a capital asset in the hands of the shareholder. -------------------------------------------------------------------------------- © 2008 CCH. All Rights Reserved. CCH® Master Tax Guide Top Federal Tax Issues for 2008 1040 Express Answers 1041 Express Answers 1065 Express Answers 1120S Express Answers Business Quick Answers All States Quick Answers Find it Fast Kleinrock's Compliance Guide 1040 Kleinrock's Compliance Guide 706, 709, 1041, 1120, 1120S, 1065 Kleinrock's 1040 Kleinrock's Payroll Tax Kleinrock's 990 Federal Daily Tax Bulletin Federal Daily Tax Bulletin Archive Federal Tax Bulletin Back Issues Employment Tax Briefing Employment Tax Briefing Archive California Tax Bulletin New York Tax Bulletin Kleinrock CPE Annual Review CPE Federal TaxExpert® All States TaxExpert Employment TaxExpert® Federal Archive Library State Archive Library Quote Link to comment Share on other sites More sharing options...
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