Project Description

Final regulations have been issued that provide that only bona fide shareholder loans to an S corporation create shareholder basis.  Shareholders can increase their adjusted basis in any indebtedness to them only if the indebtedness is “bona fide”.  General federal tax principles (many of which have been developed outside of Code Sec. 1366) determine whether indebtedness is “bona fide”.  In addition to reviewing the final regulations recently issued it is a good idea to review TC Memo 2013-80 as well which lays out some of the factors to consider when evaluating the nature of transfers of funds to closely held corporations. Read the IRS issued T.D.-9682.pdf