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California C-Corp shareholder loan

Technical topics regarding tax preparation.
#1
RJH  
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24
Joined:
30-Jan-2019 4:44pm
Location:
San Jose, CA
Hi All,

I have never seen this before. I just met with a new client that has a california C-Corp with employees. He owns 100% of the C-Corp. while reviewing his balance sheet, I saw $384,000 in accrual interest and a loan to the C-Corp from my client. I asked him what this is about and he said he loan the company $365,000 back in 2006. He has never paid back the loan and just been accruing the interest. He has not been taking any of the interest as a deduction on the tax return.

He tells me that the old tax preparer ( who died) said this was ok.

My quesitons:

Is this ok? Is this just buying more stock in the business and not a loan. Can he keep doing this until he close the business ( he is 72). Also, if he close the business, what happens to the accrual interest and the loan?

Any help would be appreciated
 

#2
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Near the fridge.
Who's been accruing but not recognizing interest? The corporation/borrower, or the shareholder/lender/taxpayer? Or both?

Like, "his balance sheet" has a certain *ambiguity* about it, n'est-ce pas?
 

#3
RJH  
Posts:
24
Joined:
30-Jan-2019 4:44pm
Location:
San Jose, CA
The company is the one that recieved the loan of $365,000. The 100% owner give the loan to the company. The company has not recognized interest deductions and the owner has not recieved payment for the loan or interest.
 

#4
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3214
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Near the fridge.
When the credit for the accrued interest liability went to the corporation's balance sheet, where did the debit for the accrued interest expense go? And did that expense get "non-deducted" each year on the corporation's income tax return?
 

#5
RJH  
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24
Joined:
30-Jan-2019 4:44pm
Location:
San Jose, CA
It was added to the loan on the balancesheet and was not deducted.
 

#6
sjrcpa  
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Maryland
What was the other side of the entry?
Debit what?
Credit Loan from shareholder
 


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