Loan treatment (non - repayment)

[ILLMAS]

TP borrowed money from his corporation, then he loaned it to his BFF, BFF is not going to repay it and is okay receiving a 1099, would he be safe to classify it as other income since it's not related to compensation?

Thanks

MAS

[Lion EA]

Shareholder/employee "borrowed" money from his corporation and is not going to pay it back. It would not have been available to him if he weren't a shareholder/employee. Compensation, dividends, not a loan to shareholder if no expectation of repayment. Sounds related to compensation or related to investment in corporation to me.

TP's personal loan to BFF sounds more like a gift and depending on the amount TP may need to file a gift tax return if he has no expectation of repayment from BFF.

Follow the money.

[kcjenkins]

Sounds like two different issues. One, the defaulted 'loan'. Whether it's a true loan and not a gift is the real question. If it was, then yes, he can send a 1099 C for the write-off. Two, his loan from the corp. Is he going to repay that? Was it properly set up as a loan, with a stated interest rate? If he does not plan to repay the corp, REGARDLESS OF WHETHER HIS 'FRIEND' REPAYS HIM, then it's not a loan, it's either 'compensation' = put on W-2, or its a taxable distribution.