Quick one - deducting a loss for S-corp loan basis upon termination

[LCP]

Can you do it? LTCG?

[LCP]

Maybe my question didn't make sense (I've been known to not make sense) or it is too simple. Here's a hypothetical ....

Shareholders loan the S-Corp $50k to operate. Zero was invested in stock. Over the years there was a total loss but since they had no stock basis they never deducted anything and still have $50k loan basis.

When they close the doors how is the $50k loss treated?

[OldJack]

You got a real problem because shareholder loans (not guarantees) are counted as basis for operating losses in the year of the loss. They did not deduct the loss when they should have but they still used the loan basis even though they did not deduct the loss. You probably have no basis left in the loan. Maybe you can amend their tax 1040 returns and still claim the losses for those past years?

edit: BTW, if deductible the basis of the loan would be deducted either be deducted as a business bad debt on 1040 Sch-E, page 2, or as a liquidating basis for overall capital loss on 1040 Sch-D. It all depends upon the timing of when the loss actually became worthless, before the liquidation/termination of the company or at the liquidation/termination.

[Bird Legs]

No Stock Was Issued?

Thought that the stock of a corporation had to be issued before it could start operating.
Somone enlighten me please, for I surely need help.