Stock loan treatment by IRS


M

malibu.ron

A private party offered to loan money against my stock if I
transfer the shares to the lenders name. A document signed
by both parties will state the transfer is to secure a loan.
Will the IRS treat the transfer as a sale or will they
recognize that the transfer was for security purposes only.
The loan is repayable in one year.
 
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S

Stuart A. Bronstein

A private party offered to loan money against my stock if I
transfer the shares to the lenders name. A document signed
by both parties will state the transfer is to secure a loan.
Will the IRS treat the transfer as a sale or will they
recognize that the transfer was for security purposes only.
The loan is repayable in one year.
The best way to do that is to give them a security agreement
that allows them to put the stock in their name if you don't
pay. This kind of arrangement can be dangerous from more
than a tax perspective.

Stu
 
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P

Phil Marti

A private party offered to loan money against my stock if I
transfer the shares to the lenders name. A document signed
by both parties will state the transfer is to secure a loan.
Will the IRS treat the transfer as a sale or will they
recognize that the transfer was for security purposes only.
Whether or not this constitutes a transfer to the other
party is a state property law question.

I don't see the point of this exercise. Why not just pledge
the stock as collateral for the loan, thus avoiding any
question?
 
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S

Seth Breidbart

A private party offered to loan money against my stock if I
transfer the shares to the lenders name. A document signed
by both parties will state the transfer is to secure a loan.
Will the IRS treat the transfer as a sale or will they
recognize that the transfer was for security purposes only.
Are you being lent the full value of the stock, or a
fraction?

What happens when the lender takes the stock and runs away?
I'd recommend escrowing it with a bank or lawyer; that's a
lot safer for you, and looks much less like a sale.
The loan is repayable in one year.
If you repay it and get the stock back, you have a
reasonable argument against it having been a sale. What if
that doesn't happen?

Seth
 
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H

Herb Smith

A private party offered to loan money against my stock if I
transfer the shares to the lenders name. A document signed
by both parties will state the transfer is to secure a loan.
Will the IRS treat the transfer as a sale or will they
recognize that the transfer was for security purposes only.
The loan is repayable in one year.
Tendering the shares as collateral for a loan should not be
considered a SALE, provided you do NOT transfer them on the
books of the company. The lender is merely holding the asset
as insurance that you will payoff the loan. If the loan is
not repaid, and the stock is forfeited to the lender, then
you would have a sale (at the value of the forfeited loan
balance).

If you actually changed the name on the stock, you have made
either a sale or a gift.
 
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