Question about a loan to a C Corp from a non shareholder.

[Safire]

Can a non shareholder loan money to a C corp at less interest that the federal minimum rate?

Have a situation where someone is willing to loan the corp money at the max rate that they would earn on a certificate of deposit, around 5.9%

[Bees Knees]

The current applicable federal rates...

http://evans-legal.com/dan/afr.html

are all below 5.9%, so there is no problem here.

If the loan was below the AFR, you might have an issue with the imputed interest rules, discussed on page 3-18 of TTB.

[jainen]

It's a free country

>>Can a non shareholder loan money to a C corp at less interest that the federal minimum rate?<<

It's a free country, ain't it? You can lend anything to anyone on any terms you want!

Different transactions may be reported in different ways for tax purposes, but that should never be the principal concern in a business deal.

[Safire]

thanks guys

[Armando Beaujolais]

>>Can a non shareholder loan money to a C corp at less interest that the federal minimum rate?<<

It's a free country, ain't it? You can lend anything to anyone on any terms you want!

Different transactions may be reported in different ways for tax purposes, but that should never be the principal concern in a business deal.

I disagree. An attitude of "Make the deal now, worry about the tax effects later" is a recipe for disaster.

[jainen]

the plan makes sense

>>Make the deal now, worry about the tax effects later<<

You know that's not what I said, and we don't disagree, AB. The question was CAN they. Nothing in the tax code argues against it. Of course they should consider the tax effect. That is an important but not primary factor as to whether the plan makes sense.

[OldJack]

Nothing in the tax code argues against it. Of course they should consider the tax effect. That is an important but not primary factor as to whether the plan makes sense.

I agree with Jainen. Taxes are not always the primary factor to consider in business transactions. You have to look at the overall purpose or objective of a business arrangement.

[Armando Beaujolais]

We're probably on the same page. I often advise clients to make decisions based on what's best for them, not based on tax considerations. I was, however, uncomfortable with the quote:

"Different transactions may be reported in different ways for tax purposes, but that should never be the principal concern in a business deal."

Never? There are many situations where taxpayers should walk - no, run! - away from business deals strictly because of tax considerations. Bringing a shareholder into an S corporation might be a great idea for all involved, except what if it's an ineligible shareholder? A business deal might be great for all involved except what if the transaction violates related party rules? It might be a great idea to pull all of your retirement funds out of A Broker and put the money into B Investments, except the transfer wouldn't qualify as a rollover. The list goes on and on. There are countless situations where tax considerations would be the principle concern in a business deal.

[jainen]

I'll second that

>>countless situations<<

Sure, I'll second that. Moving the IRA is a good example--in fact, locking the money up in an IRA in the first place only makes sense from a tax standpoint.

[outwest]

How about putting it this way..

don't make a business decision looking at just one economic factor.

(whether taxes, alternative investments, return or otherwise.)

Doug

[Safire]

Jainen, I apologize for not phrasing my question correctly. I knew there were certain rules about closely held corporations borrowing money from family or friends with little or no interest.

I assumed you smart people would, and I think most did, understand what I was asking.

I can count on you to always raise the bar a little.