It's all in the family.* Several family members owned a corporation, but none of them had a controlling interest controlling interest The ownership of a quantity of outstanding corporate stock sufficient to control the actions of the firm. Controlling interest often involves ownership of significantly less than 51% of a firm's outstanding stock because many owners fail . The corporation made several interest-free loans to various partnerships. All the partners were family members, but some partners were not shareholders of the corporation. The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. said that under IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. section 7872, the corporation should have reported the forgone interest as taxable income on its federal return and the same amount should have been reported as dividend income by the shareholder-partners. The corporation argued that IRC section 7872 only applied to sole or controlling shareholders, and that, even if the imputed interest rules did apply, they should apply only to the extent the shareholder-partners benefited from the loan. In other words Adv. 1. in other words - otherwise stated; "in other words, we are broke" put differently , since the shareholders owned only part of the partnerships, then they should be taxed only on a portion of the imputed Attributed vicariously. In the legal sense, the term imputed is used to describe an action, fact, or quality, the knowledge of which is charged to an individual based upon the actions of another for whom the individual is responsible rather than on the individual's income. The Tenth Circuit Court of Appeals affirmed the Tax Court and held that IRC section 7872 applied to any below-market interest loan, direct or indirect, between a corporation and any of its shareholders. According to the Tenth Circuit, the imputed interest rules apply when a corporation makes loans to entities owned partially by its shareholders and partially by their family members who aren't shareholders. This holds true even if none of the corporate shareholders has a controlling interest in the entity. The court reasoned that if nonfamily members had owned significant interests in the borrowing entities, the corporation probably wouldn't have made the loans. Therefore, the corporation and its shareholders had to report as income the forgone interest on the entire amount of the loan (Roundtree Cotton Co. v. Commissioner, 87 AFTR AFTR American Federal Tax Reports (Prentice-Hall) AFTR Americans For Tax Reform AFTR Air Force Training Ribbon AFTR Air Force Training Record AFTR atrophy, fasciculation, tremor, rigidity AFTR Atomic Frequency Time Reference 2d 2001-718 (CA 10, 3-29-01)). |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion