Loan to S-Corp shareholder

[Guest Larry J]

Forgive me if this topic has already been discussed.

Does anyone know if the S-Election of a corporation is recinded if a loan is made to an owner-employer of the S-Corp? I swear I read that somewhere years ago.

[Guest Bill]

If the loan is made to an owner-employee of an S-Corp it is a prohibited transaction. The S election must be rescinded prior to the loan. Also, if an owner-employee has an existing plan loan and later elects s-corp the loan immediately becomes a prohibited transaction.

[Guest Mike Kimball]

Check ERISA Opinion Letter 84-44A for guidance.