Basis Issue for 2 S Corps, same owner for 1

[Uncle Sam]

I have 2 S corps - one is owned 100% by shareholder A. The 2nd S Corp is owned 50% by shareholder A, 50% by shareholder B. Two different businesses.

On books of 100% shareholder A there's a Loan Receivable of $ 18,000

On books of 50/50 corp, there's a Loan Payable from 100% corp for $ 18,000, Loan Payable Shareholder A $ 8,000, Loan Payable Shareholder B $ 25,000.

For determination of shareholder basis for stock/loan basis on 50/50 corp, how do I calculate Shareholder A's basis - include 100% S corp loan or not?
Capital stock is equal for both. I understand the imputed interest issue for loans in excess of $ 10,000. I have a hard enough time getting both partners to take salaries, although they don't take any distributions.

Both have full time jobs somewhere else. I do the 1040 only for shareholder A.

[DaveinTexas]

I wouldn’t include the loan from 100% Corp to 50% Corp unless the monies were loaned directly from the Shareholder to the 59% Corp. There must be a direct cash outlay from Shareholder to Corp, evidenced by a promissory note if possible. What you have is a loan with no increase to shareholder A’s basis, bummer. What should have happened is a Distribution from 100% Corp to Shareholder A, then a loan from A to 50% Shareholder, or better yet, APIC for Shareholder A. No need to track a loan or loan basis, etc.

It is good advice to mention the salaries. The IRS can still reclassify loan repayments as salary (IRS V Glass Blocks Unlimited).

Just an FYI, I’ve been converting Shareholder Loans, when I can, to APIC to eliminate this problem. It works well in a one man S Corp, for obvious reasons. I make sure not to adjust their basis if the loan basis was less than the loan principal so as not to double dip. Just less scrutiny and no need to charge interest, track a loan, etc. I know you don’t prepare the Corp Returns, but providing your client with a bit of advice as to how to structure these arrangements in the future may earn you the Corp preparation one day, if you wanted it.

But, I get it, if he doesn’t listen to your salary advice, you might not want the prepare the Corp return!

[Uncle Sam]

Dave - thanks for the response. I DO prepare BOTH S corp returns. Since shareholder A is my contact - other than preparing a K-1 for shareholder B, I have absolutely nothing to do with S/H B.
Of course, there are no written agreements to anything here, as many things have be booked in by journal entry AFTER the fact, as I discover them only by questioning S/H A about them. Yes- I've repeatedly mentioned reasonable salary issues - but the discussion leads nowhere - real stubborn client. What I do though, is prepare -0- 941's each quarter for both corporations and have client sign and file - so long as there's no money due, he'll sign it because he does understand some form of compliance.
But thanks again- I won't include the 100% corp loan to S/H A basis.

[DaveinTexas]

My apologies, I didn’t know you prepared the Corp Returns too. I like the $0 filing of 941s. Let this be a lesson to those that don’t know why you would do this. It is so the statute for the IRS to audit the payroll return can start ticking away. This way, if the IRS rechacterizes the loan repayments as salary, at least by filing the 941s with zeroes, there will be no Failure To File penalty.

I have a few of these myself. It’s to the point where I just might not engage them any further. Frustrating.