A shareholder made a loan of 1,000 to a corporation in which she owned 50% of the stock. The loan is evidenced by a promissory note with the word "LOAN" printed at the top. The loan has a market interest rate and has fixed repayment terms not dependent on the corporation's profitability. Consider the following additional facts: A. The loan is subordinated to the claims of other non-shareholder creditors. B. Including the loan, the corporation has a low debt/equity ratio relative to other companies in its industry. C. Before the shareholder made the loan, the corporation applied for a 1,000 loan to a bank and was denied due to lack of creditworthiness. D. The loan entitles the shareholder the right to approve any transaction more than 25% of the loan balance. E. No other shareholder made a loan to the corporation. Do you think the loan is likely to be treated as debt or equity by the IRS?

Answer rating: 100% (QA)

ANSWER IS the loan is more likely to be treated as debt rather than equity by the IRS Heres why Prom... View the full answer