S-corp Shareholder interest free loans


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Feb 17, 2012
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Hello,

I had a question I wanted some opinions on. Two owners of an S-corp have loaned the S-corp funds for various reasons over the past few years. The loans are documented stating they are loans but there is not interested that was charged. Most loans were over $10k.

What are the possible negative effects of this in case of an audit? I understand the IRS could consider these to be capital rather than loans.

The S corp has never had a profit.

Thanks for your thoughts!
 
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