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Shareholder Bridge Loan to a C Corp that must be forgiven to

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get new investment into company...
Shareholder Bridge Loan to a C Corp that must be forgiven to get new investment into company. Can I take it as a loss?
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Submitted: 10 months ago.Category: Tax
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Customer reply replied 10 months ago
is anyone ready?
Answered in 11 minutes by:
1/4/2017
Tax Professional: Mark D, Enrolled Agent replied 10 months ago
Mark D
Mark D, Enrolled Agent
Category: Tax
Satisfied Customers: 1,304
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Hello

Is the loan to be converted to equity or just forgiven?

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Customer reply replied 10 months ago
Hello - Through my LLC I made two loans to the c corp. An a/r revolver and a bridge loan. The bridge loan needs to be forgiven or wiped out in order to attract outside investment. Otherwise whole company goes under. I can't convert it to equity.
Customer reply replied 10 months ago
I am the majority shareholder in C corp and also the CEO of C corp.
Customer reply replied 10 months ago
I don't get a salary so none of it is going to pay me.
Customer reply replied 10 months ago
Is anyone there?
Tax Professional: Mark D, Enrolled Agent replied 10 months ago

Thanks. The LLC would take a capital loss for non-business bad debt (I know that sounds wrong, but that is what it is). The C-Corp would have Cancellation of Debt Income (CODI), which would be taxable income. However, if insolvent, the C Corp could file Form 982 with the return and exclude CODI to the extent insolvent. Because this is a related party transaction, you will want to document well how this was a necessary business practice. Does that answer your question?

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Customer reply replied 10 months ago
If I cancel this debt the company will be able to raise outside capital and continue operating so the company won't go under. It has plenty of losses so I'm not worried about the gain on company books. The loan has been documented but since I am a related party is that enough to be able to take the loss as non business bad debt loss and offset it against other capital gains that I have?
Tax Professional: Mark D, Enrolled Agent replied 10 months ago

Assuming the LLC is a flow through entity (no C-Corp election) the capital loss will flow through to your personal taxes. There it can offset cap gains in full, or up to $3K of ordinary income. Anything unused will carry forward.

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Tax Professional: Mark D, Enrolled Agent replied 10 months ago

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