How to maximize basis when an S corp. borrows cash

Article Abstract:

There are several ways by which basis can be increased when problems arise wherein shareholders guarantee corporate loans or loan money to Subchapter S corporations. Based on the Subchapter S Revision Act of 1982, shareholder basis may be increased through payment of personally guaranteed corporate debt because of the shareholder's possession of a claim against the corporation. Basis can also be maximized through additional cash infusions with a resulting tax free property basis or when loans are made by the stockholders to the corporation. Another basis maximizing alternative calls for stockholders to loan money for relending to a corporation which consequently uses the money to finance the stockholders' loan guarantees. Problems encountered in the various approaches to basis maximization, and the measures to be taken to avoid them, are also discussed in the article.

Finance, S corporations, Basis (Taxation)

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Contingent-payment debts covered by new regs

Article Abstract:

Final Regulations on the treatment of debt instruments having one or more contingent payments have been issued. A contingency is included initially in determining the yield if the issuance of the instrument is made for cash or publicly traded property. However, a contingent payment is categorized as a different instrument and is effective only when made on a sale of non-publicly traded property covered by Sec. 1274. The final regulations employ the 'noncontingent bond method' to calculate interest accruals on contingent payment debt instruments released for cash or marketable securities. The final Regulations, which become effective for debt instruments issued after Aug. 12, 1996, are not applicable to state-sponsored prepaid tuition plans to allow participants to save for post-high school education.

Debt, Financial contingencies

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Contingent sales: how to recoup basis to produce the best tax results

Article Abstract:

When sales are transacted and the final sales price is unknown, as in the case of partnership buy-outs contingent upon future sales proceeds, stock sales involving future gross receipts, or sales of oil and gas properties which include provisions for future production in their pricing clauses, the sales are classifiable as contingent sales and should be accounted for using the installment sales method for taxation purposes. This accounting method is discussed, and the following topics are covered: maximum selling prices for transactions that qualify, fixed period calculations of profit and sales prices, income forecasting, special rules, and how to account for such sales when neither the price or the period of sale is determinable.

Installment contracts, Conditional sales contracts, Sales accounting

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