Proper reporting of S corporation
indebtedness.
Unlike partners in a partnership, shareholders of an S corp may
acquire tax bases in the S corp indebtedness only to the extent of their
loans made directly to the corporation [IRC Sec. 1367(b)(2)(A)].
Therefore, proper reporting of S corp indebtedness on the balance sheet
is essential to avoid unnecessary income tax examinations. S corps must
report all loans received directly from shareholders on Line 18 of
Sched. L of Form 100S to properly reflect such loans.
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