- Published: Thursday, 19 December 2013 11:23
If you own a business and you plan to loan money to the company, consult an attorney such as Slusser Law Firm in Hazleton, Pa., about the paperwork. Otherwise, the IRS could claim the money wasn’t a loan after all, and come after you for additional taxes.
Fred Blodgett found this out the hard way. Blodgett owned a small company (an S corporation) that sold architectural glass blocks. When the real estate downturn hit, he supported the company by transferring money to it from a family trust. He called this a loan. In subsequent years, the company paid him about $60,000, which he called a loan repayment.
Not so fast, the IRS said. According to the IRS, the “loan” wasn’t a loan at all, but a simple contribution of capital. And the “repayment” was actually just ordinary wages for the manager of the business. Therefore, the IRS claimed, the company owed more than $13,000 in employment taxes and penalties.