Tax News

CCH (cch.taxgroup.com) reports:

  Payments received by a married couple from a corporation were repayments of a loan and interest and not constructive distributions to the husband, who was a shareholder of the corporation. The IRS failed to show that the payments were made to satisfy the personal and moral obligations of the former owners of the corporation and were not really a repayment of debt.

  Further, the IRS's argument that the obligation to repay was unenforceable under the state (Oregon) statute of frauds since there was no written agreement between the wife and the corporation was rejected. Although no written agreement existed, the corporation's conduct in actually making payments to the wife established the loan repayment character of the payments and the principal and interest nature of the payments. Thus, the funds the wife received constituted nothing more than interest and repayment of loan principal.

A. Beckley, 130 TC No. 18, Dec. 57,480

Other References:

 
Code Sec. 61

  CCH Reference - 2008FED ¶5504.2856

  CCH Reference - 2008FED ¶5504.2863

  Tax Research Consultant

  CCH Reference - TRC INDIV: 12,050