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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.
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One other option would be to record the unpaid balance as distribution to the 100% shareholder.
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Thank you for your response. Without going into a million details, I have thought of that but it wont work. It needs to be cancelation of debt. I just cant figure out how to get it off the books.
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On the S corp books, book the loan forgiveness as a nondeductible expense, and in Lacerte on Screen 31 - Schedule M-1 under Nondeductible expenses in the Other field with an explanation.
