Plan Loan to Participant who later becomes >5% Sub-S Shareholder: I

[Guest Allan Hensley]

What happens when a C-Corp. greater than 5% shareholder

borrows from the Profit Sharing Plan and then proceeds

to convert to an S-Corp prior to the loan being paid off?

Is there relief in that the loan was proper at the time

it was made, or is it deemed improper at the point when

he becomes a more than 5% owner of the S-Corp? Anyone have

any ideas or is there guidance?

[KJohnson]

I think the PT arises when S status is elected. You might want to look at DOL Opinion Letter 84-44A