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Scorp loan forgiven due to death

Forum|Forum|5 years ago
April 28, 2021
3 replies
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A client of mine with an Scorp purchased fixed assets, goodwill, and inventory from his dad three years ago in the amount of $197,000.00. There was a contract drawn up and loan taken for the full $197,000. Currently amortizing and depreciating. His dad passed away last year when the loan balance was $133,000.00. The dad forgave the loan on his deathbed. Trying to avoid COD. Was hoping to figure out a way to cancel things out via inheritance. Any ideas?

Thanks

ProSeries Professional

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Best answer by IRonMaN

Have you thought about just rolling it into equity instead of a loan to the son?

IRonMaN

Level 15

Did he forgive the loan or did he gift the loan to his son?

Slava Ukraini!

A

Avs19Author

Level 6

Apparently it states in his dad's will that he forgives the promissory note between him and the Scorp which his son owns.

qbteachmt

Level 15

@Avs19

Whose tax return are you working on: The 1120S, the deceased, or "your friend's individual?"

Don't yell at us; we're volunteers

A

Avs19Author

Level 6

Working on the Scorp (1120S) and shareholder/son (1040)

IRonMaN

Level 15

Substance over form? Was it really the father's intent to have his son pay tax on loan forgiveness or was his real intent to just not have the son pay money back to the estate?

Slava Ukraini!

A

Avs19Author

Level 6

I'm sure the intent was to not pay taxes on the forgiveness but my worry is that it was between the Scorp and the father. Not sure how much of a difference that makes?

Thought about transferring the loan to the son and have Scorp continue to make payments to the son but not sure if that would fly with the IRS.

IRonMaNAnswer

Level 15

Have you thought about just rolling it into equity instead of a loan to the son?

Slava Ukraini!

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