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Lane
Lane , JD, CFP, MBA, CRPS
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Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Does a S Corp need to be notarized to be a legal document?

Resolved Question:

When I create a loan document between my S Corp and me does it need to be notarized to be a legal document according to the IRS?  If it does and I haven't done so for the past 12 years, what do I do to pass an audit if one comes up to keep from it being disallowed?

Submitted: 3 years ago.
Category: Tax
Expert:  Lane replied 3 years ago.

The IRS won't pass judgement on what forms you use.

They will look at things such as whether you charged an interest rate that's below market: see AFR (applicable federal rate) to be sure you're recognizing enough income.

For a loan document to be valid, it essentially has to have the required elements of a contract ((1)sufficient terms - length of time, payment amount, whether or not there's a pre-payment penalty, any collateral securing the loan, etc. - (2)agreement between competent parties with capacity and consent to contract, (3)an exchange of consideration - interest for the use of the money, in this case, (4) intent to make a binding contract.

But again, the IRS will be concerned with actions that indicate evading or understating income, not whether a contract is binding your state.

Here are some sites that offer loan documents, some are free some are not:

http://www.entrepreneur.com/formnet/form/807

https://www.rocketlawyer.com/secure/interview/new.aspx?id=1361&utm_source=1034&try=1&v=3&gclid=CMi dlum647ICFQTznAodv34AVg#q1

http://www.lawdepot.com/contracts/loan-agreement/?loc=US&pid=googleppc-bloan_us2-ft_loan_d4ft-s-ggkey_free%20loan%20agreement&s_kwcid=free%20loan%20agreement|5997625463

http://www.biztree.com/loan-agreement?ppc=1&gclid=CNCT-qm747ICFQs5nAod22AAjw

http://www.brothersoft.com/downloads/loan-agreement-template.html

Ad on the question of an audit, once again it comes down to substance over form with the IRS.

They will want to see evidence that the loan was real (1) Money was paid, interest was paid, rate was reasonable, etc.

Come back to this page if you need clarification.

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 9237
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 2 other Tax Specialists are ready to help you
Expert:  Lev replied 7 months ago.
There is NO requirements for the loan note to be notarized.That is a civil agreement between parties - and as long as both parties agreed on terms - there is no issues.For audit purposes - you will need to proof the fact of the loan (money were transferred) and that is a true loan which has intention to be paid back (with amortization schedule and actual payments)Any questions?

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