| The Imputed interest income is not considered a distribution to the shareholder, however, it is reported on Form 1099-Int to the shareholder assuming the corporation has paid or accrued interest to the shareholder!
The corporation will deduct interest expense to the extent of the imputed interest expense paid to the shareholder for the shareholder loan (calculated at a reasonable interest rate as established by the shareholder loan agreement).
Thus, the shareholder basis consideration is irrelevent in this case. The corporation simply deducts the interest expense and the shareholder would include this amount as interest income on his or her personal tax return. | 
