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The
sole shareholder of a small business advanced a large sum of money
to the corporation When the company became insolvent, he claimed
a business bad-debt deduction. The IRS and a federal district court
denied the deduction for three reasons:
- The note contained no payment schedule or maturity date.
- The corporation was unable to obtain a bank loan.
- The
corporation provided no collateral for the loan.
Such arrangements must be documented
to prove a true borrower-lender relationship existed between you
and your corporation.
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