Scorp shareholder loan interest
Posted: 20-Oct-2020 2:02pm
Client is a shareholder of a Corp and he borrowed a loan from it some years ago. He has been paying interest to the Corp based on the IRS Applicable Federal Rate (AFR) at the time when he first obtained the loan.
Because of the continuous drop of interest rate in recent years, the rate that he is paying now is way higher than the present IRS AFR. Therefore, he is hoping to reduce the interest rate of his loan too. He is the only shareholder of the Corp, it will be easy for him to reduce the rate. My question is:
(1) Is he allowed to do that?
(2) Even if allowed, is it advisable for him to do that though, such as would he get into problem with the IRS?
Because of the continuous drop of interest rate in recent years, the rate that he is paying now is way higher than the present IRS AFR. Therefore, he is hoping to reduce the interest rate of his loan too. He is the only shareholder of the Corp, it will be easy for him to reduce the rate. My question is:
(1) Is he allowed to do that?
(2) Even if allowed, is it advisable for him to do that though, such as would he get into problem with the IRS?