Family Loan

[Snaggletooth]

A is a 100% shareholder in C Corp. B is A's brother.

C corp loans $13,000 to brother B.

C corp and brother B are related taxpayers, no question.

My question is: On the Sch L Balance Sheet, is the $13,000 to be included
in "Loans to Shareholders?" Brother B is not a shareholder but is a related
taxpayer.

[tilt53]

I don't know anything about shareholder loans, but isn't the C corp its own entity? That would make A & B related obviously, but I don't think B & corp are related.

[erchess]

Economic Substance

Sandy you're forgetting the Economic Substance Doctrine. If the C Corp had enough ownership by parties unrelated to B then B would not be related to the Corp but since the Corp is wholly owned by A and A is related to B then the Corp is related to B.

[tilt53]

Thank you, I don't do corps. so I couldn't follow the logic.

[ChEAr$]

I remember one time when the son of a 100% S corp shareholder bought equipment from
the corporation. What I found out for purposes of loss recognition was that the son and
the corporation were not related parties.

But that was 20 years ago,too.

[Snaggletooth]

BIG Tax

Don't know how the son would not be a related taxpayer. If S corp sold equipment to taxpayer's son for a loss, I don't think the loss would be allowed. However, the corporation basis may have been different than what was shown if the equipment had first been contributed by its shareholder. Under such circumstances, the S corp is required to keep double books on the equipment.

Although I'm thankful for the many posts responding, the original question remains unanswered. Is the brother B's $13,000 loan reportable under "Loans to Shareholders?"

[Zee]

Don't know how the son would not be a related taxpayer. If S corp sold equipment to taxpayer's son for a loss, I don't think the loss would be allowed. However, the corporation basis may have been different than what was shown if the equipment had first been contributed by its shareholder. Under such circumstances, the S corp is required to keep double books on the equipment.

Although I'm thankful for the many posts responding, the original question remains unanswered. Is the brother B's $13,000 loan reportable under "Loans to Shareholders?"

After reading John H's response, I realized my wasn't clear. So, here's an updated response.

I would suggest classifying the loan on the general ledger as "Loans Receivable from Related Non-Shareholders" to provide transparency and ensure proper handling, and I would map the account # to the 1120 line for Other Current Assets, or Other Assets (if Long Term) on the tax return. I believe this would be proper reporting under GAAP as well.

As you're already aware, the transaction should be arms-length and reasonable interest should be charged or imputed. Since this doesn't appear to be a business loan, if the borrower defaults, I believe any loss would be a capital loss.

I hope this helps.

[JohnH]

Ron: I'd be inclined to stick with the terminology on the return, so there's no reason to classify the loan to "B" as a Loan to Shareholder. I tend to provide only the info on the return that is actually required. If IRS wants any more details about anything on the return, they have the mailing address.

[BHoffman]

Snags - is it possible that Shareholder A took a $13,000 loan from his C-Corp and then turned around and loaned the money to his brother?

[ChEAr$]

Ron: I'd be inclined to stick with the terminology on the return, so there's no reason to classify the loan to "B" as a Loan to Shareholder. I tend to provide only the info on the return that is actually required. If IRS wans any more details about anything on the return, they have the mailing address.

Exactly, because the brother is simply not a stockholder.

My classification would be Loan receivable - other

[Snaggletooth]

Beth

Snags - is it possible that Shareholder A took a $13,000 loan from his C-Corp and then turned around and loaned the money to his brother?

Beth, I certainly hope this is not the case, because to my way of thinking, this would create a receivable from shareholder A, with possible dividend ramifications, not to mention imputed interest.

Instead I am told that the Corporation wrote a check to brother B, and loaned him the money.