Hey Pros,
I inherited a new (to me) S Corp client this year that had a s/h loan of ~$500k discharged by a bankruptcy court. Ordinarily, s/h loans that are discharged are done via being contributed to capital and are a non-issue since, per IRC Secs 108(e)(6) and 108(d)(7)(C), there is no COD recognition. However, in this particular case, the loan was discharged by a bankruptcy court. Is there any way I can still use the above code sections and treat it as contribution to capital anyway? Does the court discharge prevent the contribution to capital of the loan?
Thanks in advance!