personal holding company tax

  • Thread starter Harlan Lunsford
  • Start date

H

Harlan Lunsford

Client is a C corp and main business is affectionately known
as the "title pawn business". This is a means by which
(lower income mostly) customers may borrow money using their
car title as collateral. They of course are free to
continue to use the car. Don't have to tell here what
interest rates are allowed by the state.

So far, so good. Income from these loan are ordinary
income, just like pawn shops.

The waters get muddy however when the sole shareholder
decides to make a loan to a related business partnership
(he's 50% owner). That business, a partnership, signs a
note for 9% interest and makes monthly payments as agreed
upon.

The question becomes then, can all income be congregated,
aggregated, put together, "congealed? coagulated?", with
the ordinary income? (one CPA's opnion.) Or must this
interest income on the note have to be reported as interest
and trigger the PHC tax? (my opinion) This interest income
is more than 60% of AGI.

Interested in all opinions, particularly anyone with C corp
title pawn clients.

Cheer$,
Harlan Lunsford, EA in LA
 
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D

Dave Woods, EA

Harlan Lunsford said:
Client is a C corp and main business is affectionately known
as the "title pawn business". This is a means by which
(lower income mostly) customers may borrow money using their
car title as collateral. They of course are free to
continue to use the car. Don't have to tell here what
interest rates are allowed by the state.

So far, so good. Income from these loan are ordinary
income, just like pawn shops.

The waters get muddy however when the sole shareholder
decides to make a loan to a related business partnership
(he's 50% owner). That business, a partnership, signs a
note for 9% interest and makes monthly payments as agreed
upon.

The question becomes then, can all income be congregated,
aggregated, put together, "congealed? coagulated?", with
the ordinary income? (one CPA's opnion.) Or must this
interest income on the note have to be reported as interest
and trigger the PHC tax? (my opinion) This interest income
is more than 60% of AGI.

Interested in all opinions, particularly anyone with C corp
title pawn clients.
Well your issue is what type of business is the company in.
Seems to me they are in the active business of lending
money. Normally the loans are secured, this time I isn't.
I don't see where an unsecured loan of an unusually high
amount changes the characterization of interest on that loan
from ordinary income back to interest. Interest from a bond
or a bank account would but not from the active conduct of
business they normally engage in. My 2¢

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.
 
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C

Charles

In 2003 my C-Corp sold some books (purchased in 2003, if
that matters) to a used book store and received a $130
credit.

How should this be accounted for? Simply record the $130 as
miscellaneous income? What about when the credit is used
(presumably in 2004)? Should it then be claimed as an
expense?

Thank you,

Charles
 

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