Tax,
Corporate
May 30, 2017
Guidance on adding debt to a shareholder's tax basis
A recent Tax Court memo reiterates that mere promises alone, even based on court judgments with respect to these amounts due, aren't enough to constitute economic reality.
Megan Lisa Jones
Email: megan.jones@withersworldwide.com
Loyola Law School
Megan is a tax attorney who specializes in estate and business planning. She was previously an investment banker at firms including Lazard Freres & Company.
Subchapter S basis rules reflect contributions to and distributions from an S Corporation, including adjustments reflecting a shareholder's portion of debt, similar to partnerships. But if debt is to be added to basis, it must be genuine and reflect economic reality. Thus, committing to repay debt is not enough to allow the debt amount to be added to basis. Rather, there needs to be a real economic outlay or some other indicia that the debt actually accrues to the shareholder, as set forth...
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