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Inadequate Tax Basis: Leveraging Basis Rules for S Corporations

Analyzing Guaranteed Loans, Incorporated Pocketbook Theory, and Back-to-Back Loans

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Thursday, January 4, 2018

Recorded event now available

or call 1-800-926-7926

This course will provide tax counsel and advisers with techniques to overcome challenges associated with inadequate basis in S corporations. The panel will discuss IRS regulations that provide resolution to some of the most confusing areas of inadequate basis.


Regulations addressing IRC §1366 debt basis issues have perplexed S corporation shareholders in their quest to use S corporation losses. However, proper planning of transactions will help businesses adhere to the requirements of IRS final regulations and avoid misapplying legal doctrine.

The tax rules treat S corporations differently from partnerships. Specifically, while subchapter K permits a partner to include his allocable share of third-party partnership debt in the partner’s basis, subchapter S does not. This difference in treatment affects business transactions and the taxation of the business’ operations. Counsel must be prepared to leverage the latest IRS regulations to resolve these concerns.

Failure to structure third-party and self-funded debt properly can have a devastating impact on the ability of S corporation shareholders to utilize S corporation losses. The problem is exacerbated by the fact that S corp shareholders often do not realize errors until after the fact.

Listen as our experienced panel carefully reviews and provides guidance on addressing inadequate basis issues uniquely applicable to S corporations. The panelists will discuss the circumstances addressed by the IRS final regulations to include the use of guaranteed and back-to-back loans and the “incorporated pocketbook theory.”



  1. Overview of final IRS regulations
  2. Guaranteed loans to S corporation
  3. Incorporated pocketbook theory
  4. Back-to-back loans


The panel will review these and other key issues:

  • How have the IRS’ final regulations addressed the inadequate basis issues that S corporations face? How must counsel leverage these regulations?
  • What techniques are available to S corporations to maximize recognition of economic losses?
  • How must counsel navigate confusing and inconsistent legal precedent involving the use of guaranteed loans, back-to-back loans and the incorporated pocketbook theory?


Barnett, Robert
Robert S. Barnett, JD, MS (Taxation), CPA

Capell Barnett Matalon & Schoenfeld

Mr. Barnett’s practice is highly concentrated in the areas of taxation, trusts, estates, corporate and...  |  Read More

Mandarino, Joseph
Joseph C. Mandarino

Smith Gambrell & Russell

Mr. Mandarino's practice focuses on corporate, tax and finance law. He is involved with a wide variety of...  |  Read More

Dumaual, Albert
Albert Dumaual

Capell Barnett Matalon & Schoenfeld

Mr. Dumaual’s areas of practice focus primarily on tax and estate planning. He received his LL.M. in...  |  Read More

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