Sub S 100% shareholder and debt basis

[duanecpa]

There are suspended losses because of a lack of basis. in 2016 100% shareholder made a loan to the corporation which was not repaid in 2016 but was repaid in 2017.

I believe that it is required that the shareholder must use the debt basis in 2016 for calculating the loss allowed on the 2016 personal tax return - correct? Or can the shareholder not use the debt basis as of 12/31/2016 and not take the allowed loss on the 2016 personal tax return?

Are there resources that would assist in understanding debt basis for Sub S shareholders?

[DaveinTexas]

Apic

http://www.journalofaccountancy.com/issues/2004/nov/avoidthetaxtrapwhenrepayingshareholderloans.html

This article is a great help for me. I would consider booking the loan as APIC. This would increase basis for the shareholder and allow the loss to pass through in 2016, assuming he materially participates in the activity.

As for the 2017 "repayment", you could either reclasify this as a distribution, which could cause capital gain recognition if the distribution exceeds stock basis, or you could call this a loan to shareholder that must be repaid. As long as the loan to the shareholder is less than $10K, no interest needs to be collected/charged and no imputed interest to be had.

This will make it much cleaner because now you don't have to track a loan, the shareholder at worst picks up capital gain income if basis is not sufficient to cover the distributions and there is no ordinary income treatment (see the article for when loan repayments can trigger ordinary income recognition).

That's my two cents, worth only a wooden nickel.

[duanecpa]

Am unfamiliar with APIC - what does APIC stand for? Thank you

Am unfamiliar with APIC - what does APIC represent? Thank you.

[DaveinTexas]

Apic

APIC is merely additional paid in capital. It sort of like purchasing more stock in a C Corp but in this case, there are no additional shares issued to the shareholders. The PIC is a liability on the balance sheet; it acts as another treasury stock account of sorts. It can be increased but should be never decreased by losses or distributions.

APIC is another way to increase shareholder stock basis with obligation for the S Corp to repay the monies back to the shareholder. Someone might jump in here and explain it better but that is my best try.

Hey, I found this blast from the last conversation (10 years ago) regarding this very subject. Here you go: http://forum.thetaxbook.com/archive/...hp/t-6217.html