C Corp loan from shareholder

[Auto]

Client lends money to C Corp, $100,00 over course of 2 years. C Corp not able to pay loan or interest as yet. Both C Corp and shareholder are on a cash basis.

1. Does the cash basis C Corp recognize the accrued interest as an expense in the year accrued?

2. Does the C Corp issue a 1099 int to the taxpayer for the accrued interest that has not yet been paid?

Is there any documentation on this?

[BHoffman]

Client lends money to C Corp, $100,00 over course of 2 years. C Corp not able to pay loan or interest as yet. Both C Corp and shareholder are on a cash basis.

1. Does the cash basis C Corp recognize the accrued interest as an expense in the year accrued?

2. Does the C Corp issue a 1099 int to the taxpayer for the accrued interest that has not yet been paid?

Is there any documentation on this?

Auto - cash basis for both the CCorp and the shareholder, so no recognition for either until interest is paid/received. This would be true even if the CCorp reported on the accrual basis. The interest is not deductible until paid to the shareholder.

[Auto]

how accrued

So how is it accrued? Is it accrued at the end of each year by cr. accrued interest and db interest and then reversed out for cash basis accounting?

Is this how the imputed interest keeps accruing year after year until the corp can finally start paying some of the loan back?

Thanks for your feedback. This has been driving me crazy.

[BHoffman]

So how is it accrued? Is it accrued at the end of each year by cr. accrued interest and db interest and then reversed out for cash basis accounting?

Is this how the imputed interest keeps accruing year after year until the corp can finally start paying some of the loan back?

Thanks for your feedback. This has been driving me crazy.

Yep. That's how you do it

[JohnH]

You could also have the corp and shareholder swap checks each year. Write a check from the corp to pay the interest and then the shareholder would immediately loan an equal (or similar) amount back to the corp. That would be cleaner, but of course the shareholder would be paying tax on the "phantom income" each year.

Eventually it would all wash out if or when the corp has the ability to repay since the additions to the loan become non-taxable income to the shareholder when actual repayment occurs - more or less a situation resembling reinvested dividends in a mutual fund adding to basis.

[Auto]

thanks

Thanks for your replies. Very appreciated and cleared things up for me. Reading so many other posts was starting to steer me away from common sense but you've got me back on track. thanks so much!

[Greenbriar]

Followup on loan from S/H C corp to S corp

If the C corp wants S election. Assuming the election is granted by the IRS, does the loan from S/H to C corp follow on to the S corp balance sheet? Thanks.