Today the IRS and Treasury released final regulations (TD 9682) on the basis of indebtedness of S corporations to their shareholders. These final regulations provide that S corporation shareholders increase their basis of indebtedness of the S corporation to the shareholder only if the indebtedness is bona fide. Whether indebtedness is bona fide is determined under general Federal tax principles, and depends on all of the facts and circumstances. These final regulations adopt, without substantive change, the proposed regulations that had been issued on June 12, 2012. The final regulations are effective for transactions entered into on or after the date of the final regulations’ publication in the Federal Register. Taxpayers may choose to rely on these final regulations with respect to indebtedness between an S corporation and its shareholder that resulted from any transaction that occurred in a year for which the period of limitations for assessment is still open.
The regulations can be accessed via: TD 9682.pdf