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Which of the following is true when when a loan from a shareholder to an S...

Which of the following is true when when a loan from a shareholder to an S corporation has a zero basis?

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Answer #1

If A loan is given to S corporation by Shareholder the initial Basis of the Loan will be the Face value of Loan.

And If S Corpoation Passthrough a loss in excess of Stock Basis then the excess amount of loss will Reduce the Loan Basis upto Zero. Loss will firstly covers Basis of Stock by Shareholder, then gradually Excess loss will make use of basis of Loan.

This cannot flow below Zero.

If the business makes Net Income rather than loss in next years the loan Basis will be increase first, which will be upto Indebtiness of Shareholder.

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