Elliot Pisem and David E. Kahen Intercompany Loans Recharacterized: 'Fry v. Commissioner'
In 'Estate of Fry v. Commissioner', payments by one S corporation to another under identical ownership were recorded as intercompany loans. Following issuance of a notice of deficiency premised on the shareholder's stock basis in the debtor corporation being insufficient to support the losses claimed by him, the petitioners were ultimately successful in persuading the Tax Court that the transfers should be recharacterized as distributions by one corporation to its shareholder, coupled with contributions by that shareholder to the other corporation.
February 14, 2024 at 09:50 AM
9 minute read
When business activities are conducted through two or more corporations under common ownership, one such corporation will frequently be funded, directly or indirectly, with cash from the other. The manner in which funds are transferred from the corporation with available cash (ProfitCo) to the corporation with cash needs (LossCo) can affect the tax treatment of the corporations and their shareholders.
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