In: Accounting
Jack,the owner of a company, loaned his corporation $150,000. However, this corporation declared bankruptcy. How should Jack treat the loan?
Use Internal Revenue Code Sections to provide advices.
1. The loan given to his corporation will be trated as Bad loan in the Accounts of Jack. and such amount needs to be setoff in his Account as the said Amount $150000 will not be recovarable in upcoming period. and from the stand point of his Organisation, as that has been declared as bankrupt, the Organisation has no more obligation to either Owner or the Outsider.
2. Advice from IRC Point of View:
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, the cancelled amount may have to be included as income for tax purposes. When you borrowed the money, you had an obligation to repay it, so the loan proceeds did not have to be included as income. However, when the debt was subsequently forgiven, the amount received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. In these circumstances the lender (i.e., banks, credit unions, finance companies, credit card companies, the federal government, etc.) is generally required to send out Form 1099-C, Cancellation of Debt to the debtor and the IRS by January 31 of the next year following the date of the debt cancellation, and the unpaid portion of the loan proceeds then has to be reported by the debtor as income,