Market segment specialization program audit guide for shareholder loans

On April 25, 2001, the IRS released a Market Segment Specialization Program audit guide that contains audit techniques for shareholder loans. The guide explains how to determine whether a shareholder loan is a bona fide debt or a constructive dividend. It also contains examples of how below-market term and demand loans affect corporations and shareholders.

An IRS agent must determine if an advance to the shareholder is bona fide debt. The primary determination hinges on the question of whether, when the loan was made, there was a genuine intent that the funds would be repaid. The guide states that in answering this question, the courts have not looked to mere labels or to the parties' own testimony, but to the transaction's facts...