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Old 11-19-2017, 02:56 PM
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Sole shareholder loans

If a c corporation owes a sole shareholder due to shareholder loans, can the corporation transfer title to a vehicle to the shareholder as partial payment? The truck is depreciated fully. How is this transaction recorded?

Thank you.



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Old 11-20-2017, 10:56 AM
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If a c corporation owes a sole shareholder due to shareholder loans, can the corporation transfer title to a vehicle to the shareholder as partial payment? =========>Officers and directors have a fiduciary duty not to give corp property away. In general, all the directors and shareholders approve. Interest by any name is still interest and interest goes on sch B of the SH?s 1040. If the corp is not able to make timely monthtly repayments on this loan then a proper interest accrual is to be made on the loan, in other words the books should record interest paid to the shareholder. This accrual or interest paid must be aggregated at end of the year and a 1099-Interest is be prepared on the total interest paid to the shareholder (or amount accrued) and reported to the IRS.
This means effectively, that the corp would be expensing the interest paid on its books, and the shareholder/officer of the corp will be reporting interest income received from the corp or accrued on the books of the corp.

If the above rules are not observed, the IRS can impose penalties and interest on the individual shareholder/officer for underreporting income and can also recharacterise these loans as additional paid in capital instead of loans. This is a more serious outcome and consequences are that the shareholder would not be able to be repaid on his loan!.The size of the loan matters because over $10k the Corp. is required to pay the lender ,the SH, interest at the Applicable Federal Rate. This is an expense to the Corp. and income to the SH. If the interest is over $10 the corp is also required to issue a 1099-INT to the SH.


The truck is depreciated fully. How is this transaction recorded?==========> The interest on the debt is deductible to the corp, and taxable to the SH personally as income. Recording a loan payment which contains both interest and principal payments will involve a debit to Interest Expense, a debit to Loan Payable, and a credit to tangible asset, auto



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