Discussion:S/H Loan to Corp - Missed Payment
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Discussion Forum Index --> Tax Questions --> S/H Loan to Corp - Missed Payment
Msmith7305 (talk|edits) said: | 2 February 2008 |
| Cash basis 100% Shareholder makes $ 100,000 loan to his accrual basis corporation 12/15/2006. Loan calls for interest annually at 8%. Principal due in 3 years. Corporation does not make $ 8,000 interest payment to shareholder on 12/15/2007. Corporation does pay $ 8,000 on 01/15/2008 plus $ 720 additional interest accrued on the unpaid $ 108,000. What tax effect is there to shareholder and corporation for calendar year 2007?
I have pulled my hair out over this as I had assumed that, since there was adequate stated interest, Section 7872 did not apply and the corporation would have no deduction in 2007 and shareholder no interest income in 2007. Corporation would just have an accrued (but not deductible) interest payable of $ 8,000 plus change at 12/31/2007. In reviewing the IRS audit guide on shareholder loans I have found language that seems to say that, since no performance occurred in the year, interest will have to be claimed by both parties anyway under the OID type rules. Similar to getting an 18 month CD at the bank paying 8% at maturity. The IRS forces you to claim the economic accrual of interest for the calendar year as though you had received it. Does anyone have any insight, thoughts, references, etc. on this so that I can get this fog out of my brain? Thanks for any and all input. | |
