Loans remaining after sale of corporate assets

[PATAX]

C Corporation is thinking about selling the assets of the business and then closing. Of course it would be better to sell the stock to avoid double taxation. The shareholder seems to think that two small loans (that the corporation OWES) that will not be repaid prior to selling assets and closing, can somehow be "deducted" by the corporation before the tax of corporation is computed. This does not make sense to me. If the loans are not paid then would not these amounts be in fact INCOME (debt forgiven) of the corporation? One loan is for about $16,000 to a related small C  Corporation (stock owned by the same shareholder). The other small loan is about $11,000 that is owed to same officer/shareholder (as an individual). Thanks.

[IRonMaN · Accepted solution]

Your shareholder has debits and credits a little confused.  Obviously he doesn't know that debits are on the window side of the room.  You on the other hand have a firm handle on which side of the room the debits and credits are.  Kinda hard to convert income into an expense but it was a nice try on his part.  You also might want to point out to him that he has tax free money coming to himself if he pays back the loan to himself.

[PATAX]

Thanks Iron Man. I explained to him before that when the loans are repaid that they cannot be deducted as an expense by the corporation, and then on the other end they are not income to the recipient, i. e. they are just being repaid their loan. He has been thinking of selling now for years, and I've explained tax situation to him many times in the past, but I think he keeps listening to his "barber" and whoever else.

[IRonMaN]

Have you thought about installing a barber chair in your office?  Maybe if you put a few of your clients in that chair when you are talking to them, they might listen to you a little better.  

[PATAX]

I think this is an example of what happens when people build up a small business. They somehow think that they can sell at the end, and walk away with a pot of gold. It just doesn't always work out that way. If you remember years ago there was a large CPA firm I believe that went out of business because they were involved with their clients getting involved with some type of investment that would reduce the tax when their business was sold. I'm sure you remember that. If people have to pay the tax then they have to pay it and that's the way it is. If they don't like it then they can leave.