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Old 11-12-2008, 01:05 AM
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Accrued interest on shareholder note to C-Corporation

Does a cash basis taxpayer (100% shareholder in Corporation) have to recognize interest income that has been accrued, not paid, on his shareholder note?

The Corporation has only deducted the interst when it was paid, they made an M-1 adjustment for the accrued interest (not deducted on corporate tax return).



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Old 01-26-2009, 10:35 AM
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Technically speaking, the Cash Basis taxpayer (who owns 100% of a Corporation) should have to recognize the interest income that has been accrued on the Corporation books.

This is because the Corporation is required to deduct the interest expense, and the offset entry is the interest income to be recognized to the taxpayer who holds the note.

The Corporation should really not be making an M-1 adjustment on this accrued interest, but, if that was the treatment their Accountant made then perhaps for consistency purposes you would be recognizing the interest when you physically received the interest income.

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