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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29937
Experience:  Taxes, Immigration, Labor Relations
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I recently sold a type C corporation assets and business name.

Customer Question

I recently sold a type C corporation assets and business name. Among the varied history I being the principal owner loaned the corporation $300,000 from my tax paid savings.
Upon selling the business I received a check from the buyer for $1000,000. It seems logical to me , but my accountant says NO that I should be able to take the afore mentioned $300,000. from the proceeds of the sale and replace it untaxed in my savings account. After which the remaining balance moves on to be taxed after making the right adjustments of selling expenses etc.
Am I wrong in my thinking ?
Please advise
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Your assessment is correct.However - we need to consider that you as a physical person and C-corporation are two separate entities.Then - we need to be clear that $300,000 was actual a loan to the corporation and not capital contribution - so that loan note is correctly reported on C-corporation books.Then - we need to consider the interest rate on that loan. If the note does not provide for adequate stated interest, part of the stated principal may be recharacterized as imputed interest or as interest under the original issue discount rules. You must use the applicable federal rate (AFR). The rates are published monthly in the Internal Revenue Bulletins on IRS.govSee this: That interest might be deductible for C-corporation - but should be reported as your taxable income.That loan repayment woudl not affect C-corporation's taxable income.When C-corporation received the loan - it was not included into taxable income - correct? So when the loan eventually is paid back - that payment is not deductible.But otherwise - a loan repayment is NOT your taxable income.