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Lane
Lane, CFP, MBA, CRPS
Category: Tax
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Experience:  Providing Financial & Tax advice since 1986
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When I create a loan document between me and my s corp does

Resolved Question:

When I create a loan document between me and my s corp does it need to be noterized to be a leagal document in the eyes of the IRS and if it does and I haven't done so for the past 12 yrs, what do I do to pass an audit if one comes up to keep from it being disallowed.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

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

They will look a 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

(Positive feedback appreciated)


Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3106
Experience: Providing Financial & Tax advice since 1986
Lane and 8 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thanks for the feedback!

Let us know if you need anything else.


Lane

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