USA Accrued Interest Payable to Shareholder

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We have a long term note payable on the books to shareholders along with accrued interest payable. Last year we paid the shareholders (equally) from the accrued interest payable account, as we understand that interest should be paid back before the note is paid back? Is this correct? Also, should the shareholders receive a 1099-INT for that amount? This is an S Corp. Thanks!
 

kirby

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Read the note to see if it specifies how your payments to them are to be allocated to principal and interest.
 

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