With respect to shareholder loans, which of the following statements is true?
A)A loan by a corporation to a shareholder/employee to purchase shares in the corporation must be documented at the time the loan is made in order to meet one of the conditions necessary to avoid the inclusion of the loan principal as taxable income to the shareholder.
B)A shareholder/employee of a corporation who is granted a loan by the corporation to purchase shares in the corporation must hold the new shares for five years in order to meet one of the conditions necessary to avoid the inclusion of the loan principal as taxable income.
C)A shareholder/employee of a corporation who is granted a loan by the corporation to purchase shares in the corporation must repay the loan in one year in order to meet one of the conditions necessary to avoid the inclusion of the loan principal as taxable income.
D)A loan by a corporation to a shareholder/employee to purchase shares in the corporation must bear interest in order to meet one of the conditions necessary to avoid the inclusion of the loan principal as taxable income to the shareholder.

Question

Quizplus · Accepted Answer

According to the tax rules, a loan by a corporation to a shareholder/employee to purchase shares in the corporation must be documented at the time the loan is made in order to meet one of the conditions necessary to avoid the inclusion of the loan principal as taxable income to the shareholder. However, there is no requirement for the shareholder to hold the new shares for a specific time period or for the loan to be repaid in a fixed time frame. The loan may or may not bear interest, and the terms should be established in the loan document.

With Respect to Shareholder Loans, Which of the Following Statements