A 100% shareholder borrowed money from the S-Corporation and has been paying on it monthly with interest for 7 year (with signed loan documents). The S corp is going to allow cancelation of the shareholder debt. The shareholder will get a 1099-C and claim it as income. How does the Scorp get it off the books? It cant deduct it as bad debt because that would cancel out the income being reported.  The Shareholder borrowed the money for personal reasons.