Discussion:C Corp Cash contribution in return for profit sharing
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Discussion Forum Index --> Tax Questions --> C Corp Cash contribution in return for profit sharing
| 23 January 2007 | |
| Hello All,
I am fairly new to this forum. WOW, you guys are doing a great job contributing a lot of useful information. Any, here are my questions. I have a client who is a 100% shareholder in a C corp filing 1120. A corporation was received a cash contribution of $200,000 from a person other than a shareholder(a friend)and in the return corporation paid back $220,000($200,000 contribution + 20,000 profit sharing)--all transaction was done in 2006. (1)Would you please tell me how to record in the book for both I/S and B/S? (2)can my client issue 1099 Misc for the profit sharing with the amount of $20,000? (3)Any limitation or restriction for cash contribution that I need to be alert? (4)what publication or code can I find on cash contribution from a nonshareholder. Please feel free to response if you know only one of the answers. ANY ASSISTANCE WILL BE GREATLY APPRECIATED. | |
| January 23, 2007 | |
| Well, it can't be a cash contribution unless stock changed hands, which it seems it didn't. So it must be a loan. And the 20k by default then, becomes interest. 1099 INT is what i get. | |
| 23 January 2007 | |
| JRI, I agree with your analysis and conclusion. However, there can be non shareholder contributions to capital. See IRC Sec. 118 and Treas. Reg. 1.118-1. | |
| 23 January 2007 | |
| I read the IRC Sec 118 and also instruction on form 1099 INT. Now, I agree with both of you that client should get 1099 INT; however,I have never processing any form 1099 INT. PLEASE help me to fill out form 1099 INT as well. (1)A Corp should report $20,000 interest income on line 1 form 1099 INT and 1096(Form 1096 should mark x on 1099 INT box?????) (2)Is a Corp require to withholding Federal Income tax??? what about the 28% backup withholding for TIN or what does it means by 28% backup withholding? From my understanding the recipient is using Social Security number. Is there any penalty by the IRS if a corporation did not backup withholding at the 28% rate. (3)Only form 1096 and 1099 INT mail to the IRS or Are there any other forms that need to be mailed out such as Social Security Administration,etc? (4) since this is a loan, should a corp create a promissory note for record? THANK YOU SO MUCH. | |
