Personally Titled Loan On Books of S Corp

Hello, I see this problem every now and then. Want to make sure I'm on the right page here.

Got a one-shareholder S Corporation client that I don't do books for. His bookkeeper prepared balance sheet for this S Corp with 1M in long term note payable. Problem is bookkeeper also gave me statement for said note, which is titled in the shareholders name personally. Now, I run into this quite a bit and am never really sure how to handle for prior tax year, and going forward for future years.

Nor have I established completely how to handle going forward.

There is, I'm sure, a correct way to handle this common problem.

Thoughts from the group?

Did shareholder borrow the money and loan it to the corp?

More or less. There's no note that suggests that.

Does one go retroactive?

When was the 1M loaned to the S Corp (hopefully evidenced by a 1M deposit from the shareholder to the S Corp bank account)?

On a 1M loan to the S Corp the S Corp would have paid a significant amount of interest to the shareholder, depending on how long the loan was outstanding in 2018, of course. Was a 1099-INT issued to the shareholder? If there's no note, payment plan and interest based on Applicable Federal Interest rates, the IRS could challenge that the loan is not a bonafide loan.

That's the problem Andrew. I did the return last year, but didn't sign on it (long story). It is my guess that the funds were simply transferred from the shareholder's account into the S Corp account within a few days of the loan - this predates me so I'm guessing a little. No note to substantiate the transaction from the shareholder to the S Corp. There is likely never been interest paid to the shareholder from the S Corp. The payments have been made to the bank from the corporate account.

Yes the 1099 was issued to the shareholder.