S-Corporation Tax Court Case on Basis and Losses

In the tax court case Rodney Jordan v. Commissioner, shareholder loans were bona fide, as reported on the S-corporation tax return, but some repayments were taxable income because S-corporation tax losses had reduced the shareholder’s cost basis in the debt. It was also determined that the debt was open-account debt and that some S-corporation tax losses were disallowed for lack of basis.

S-Corporation Shareholder-Guaranteed Debt = No Basis to Deduct Losses

Tax court case Russell, TC Memo. 2008-246, reaffirms AGAIN that shareholder cannot deduct losses financed with debt in the name of the corporation. The S-corporation borrowed money from a bank and the shareholder guaranteed the debt. When the S-corporation incurred losses, the shareholder was not allowed to use the debt guarantee as basis to deduct the losses, which were suspended.

S-Corporation Shareholder Reasonable Salary

Tax court case Beckley: S-corporation must properly document shareholder loans to avoid IRS challenge re: constructive dividends. This C-corp case can be applied to s-corporations with regard to salary instead of constructive dividends.