How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask USTaxAdvising Your Own Question
USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1237
Experience:  US Taxation specialist.
58296935
Type Your Tax Question Here...
USTaxAdvising is online now
A new question is answered every 9 seconds

Im a physician, and I have a 10 month old S Corporation medical

Resolved Question:

I'm a physician, and I have a 10 month old S Corporation medical practice. I had a question about debt basis. I have approximately $350,000 in equipment loans from commercial lenders under the corporation with a personal guarantee. I've read online that a personal guarantee on a corporate loan does not allow me to add to my debt basis.

My question was, if I made monthly payments on the corporate loan using my personal funds, could I consider these payments as adding capital contributions or additional debt basis to the corporation as a shareholder even though the note still remains under the corporation?

If this does allow me to add to my debt basis, couldn't the corporation pay me the same amount as a loan principal payment?

Or is the only way to let this liability add to my debt basis is by asking the commercial lender to change the note to my personal name?

Thank you.
Submitted: 5 years ago.
Category: Tax
Expert:  USTaxAdvising replied 5 years ago.

That is correct, a personal guarantee on a corporate loan does not provide debt basis for an S-Corp.

 

if I made monthly payments on the corporate loan using my personal funds, could I consider these payments as adding capital contributions or additional debt basis to the corporation as a shareholder even though the note still remains under the corporation? - if you used your personal funds to pay these loans you could take these payments as capital contributions to the the S-Corp. It is not advisable to do the transactions this way, generally you should transfer the money to the S-corp and then have the S-Corp pay the loan. I have seen this done many times though and believe it will hold water with the IRS.

If this does allow me to add to my debt basis, couldn't the corporation pay me the same amount as a loan principal payment? - You cannot take these payments as debt basis. The only way you will get debt basis in the S-Corp is if you loan it money directly. There must be a good paper trail here and perhaps legal loan documentation. Also note that you must charge the S-corp interest on the loan above the IRS imputed interest rates for the year (I believe the loan must be above 10K in order for the below market interest rules to apply)

Or is the only way to let this liability add to my debt basis is by asking the commercial lender to change the note to my personal name? - The only way to get debt basis is to lend the S-corp the money as mentioned above.

 

Let me know if you have any further questions.

USTaxAdvising and other Tax Specialists are ready to help you