How to list loans FROM shareholders after sale of shares?

Hello! Ohio here.

We have a long term loan FROM (not to) shareholders in our corporate books. The loan dates from a number of years ago. We recently bought the corporation from the previous owners, carrying the loan over to the new ownership. So now the loan isn't technically from shareholders, but when it was set up that was the case.

My question is this: on the IRS form 1120, schedule L, do I list the loan on line 19 or on line 20? (Line 19 being Loans From Shareholders, line 20 being Mortgages, notes, bonds payable in one year or more.) Do note that we are required to complete schedule L due to our annual receipts and assets.

Thanks!

I have never been involved with a sale where the loans stayed on the books, nor have I researched it so take this with a huge grain of salt. You really don't want to take the chance of imputed interest with the IRS, so you have to change it to a note. It isn't a loan from shareholders any longer. Make an adjusting entry and disclose it.

Excellent point; there is interest paid on the loan at what would have been a market rate when it was set up. (6.00%) It's lower than what's available now, but we had comparables as low as 5.7% from when it was set up. So imputed interest shouldn't be a problem. Obviously I'd prefer to avoid hassles with defending that position, though!

Edit: Also, should I just disclose this on the 1120 Schedule L or is there another place to disclose it? I've also never dealt with this exact situation before, obviously. Oh, and thank you very much for the help!

technogenetic said:

Excellent point; there is interest paid on the loan at what would have been a market rate when it was set up. (6.00%) It's lower than what's available now, but we had comparables as low as 5.7% from when it was set up. So imputed interest shouldn't be a problem. Obviously I'd prefer to avoid hassles with defending that position, though!

Edit: Also, should I just disclose this on the 1120 Schedule L or is there another place to disclose it? I've also never dealt with this exact situation before, obviously. Oh, and thank you very much for the help!

Click to expand...

**A: where is your CPA?

Ummm.... probably at his office? More seriously, I just wanted some input on this one question and can take care of the rest. Thanks again, tranquility!

I would put a statement on the back of the return and a note in any financial statements. I don't think either is necessary, but that's how I'd cover myself until I did the research.