Where funds are to be transferred from a corporation to its sole shareholder, the circumstances may provide flexibility to make the transfer as a loan rather than a distribution, and transferring the funds as a loan may be more attractive from a tax perspective at least in the near term. A distribution by a C corporation on its stock will generally be a dividend to the extent of its current and accumulated earnings and profits, and that dividend may in turn result in a current tax to the shareholder.

A loan, on the other hand, if respected for tax purposes, will generally not result in an immediate tax. If there are no current and accumulated earnings and profits, a distribution of cash will generally be nontaxable to the extent of the shareholder’s stock basis, but a distribution in excess of that basis will generally result in the recognition of gain under Section 301(c)(3) of the Internal Revenue Code (Code).

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]