S Corporation Debt: Planning Opportunities With Shareholder Loans to S Corps

Utilizing Debt Basis, Ordering Rules for Distributions and Repayments, Documenting Loans to Avoid IRS Challenge

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, November 2, 2016

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers with a comprehensive and practical guide to structuring S corporation shareholder debt transactions to ensure the debt will be respected for basis increase purposes. The panel will outline what shareholder debts will increase debt basis, describe best practices for documenting loan transactions between shareholder and S corporations, discuss repayment consequences, and detail debt basis calculations.

Description

A significant benefit of ownership in an S corporation over owning partnership shares is the ability of S corporation shareholders to create debt basis by making a direct loan to the corporation. This debt basis can be used to offset distribution gain or limitation of loss deduction when losses exceed the shareholder’s stock basis in the entity.

Calculating and utilizing debt basis creates both challenges and opportunities for tax advisers. By accurately tracking debt basis, advisers can engage in year-end planning steps to manage the tax consequences of cash receipts by the S corporation shareholder. Advisers need to be thoroughly familiar with the ordering rules for reduction and restoration of debt basis, and the current year tax treatment of cash payments to shareholders with debt basis to optimize tax results.

Situations such as when a shareholder has made multiple loans to the S corporation, or when the shareholder takes cash as repayment of a loan to the corporation can complicate the tax treatment. Shareholders and their advisers can avoid negative tax consequences by properly structuring and documenting payments and distributions to a shareholder with debt basis.

Listen as our experienced panel of tax advisers provides a detailed and practical guide to the reporting challenges and planning opportunities of S corporation debt basis, and outlines best practices to help S corp shareholders avoid unnecessary tax.

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Outline

  1. Interplay between stock basis and debt basis
  2. Debt basis and repayment of shareholder loans contrasted with distributions
  3. Ordering rules for reduction and restoration of debt basis
  4. Special circumstances
  5. Planning opportunities

Benefits

The panel will discuss these and other important topics:

  • What specific loans from shareholders to S corporations serve to increase the shareholder’s debt basis?
  • What are the ordering rules for distributions to shareholders who have debt basis but zero stock basis?
  • Documentation requirement and best practices for supporting distributions against debt basis
  • Rules governing restoration of debt basis
  • Special rules when a shareholder has more than one loan to the S corporation
  • Planning opportunities involving shareholder loans to S corporations

Faculty

Mark Minassian, CPA
Mark Minassian, CPA

Minassian CPA

Mr. Minassian has extensive experience in working on tax issues for individuals, corporations, partnerships and trusts...  |  Read More

William Perez
William Perez

Mr. Perez specializes in preparing tax returns, tax planning, research and representing clients before the IRS. He...  |  Read More

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