Benny loaned $100,000 to his controlled corporation.When it became apparent that the corporation would not be able to repay the loan in the near future, Benny canceled the debt.The corporation should treat the cancellation as a nontaxable contribution to capital.

Question

Quizplus · Accepted Answer

When a shareholder cancels a debt owed to them by their controlled corporation, it is generally treated as a contribution to the corporation's capital. This is because the cancellation of the debt increases the corporation's equity, similar to if the shareholder had directly contributed additional capital, and is not considered taxable income for the corporation.

Benny Loaned $100,000 to His Controlled Corporation