in this case, IMHO, as the preparer of the corp return, i would make sure a 1099-INT was issued to the s/holder, & "suggest" the note be brought up to date (12/31) to reflect the addition of int. let the s/holder report the income, as they have recd a 1099 for it. i dont see whether it matters if accrual vs cash; its still reported on the 1099 in the correct year, & its up to the s/holder to report the 1099 int on their return.
lynne
Debbie Breedlove wrote:
There's nothing wrong with the way you're doing it, Lynne, because your shareholder is reporting it as income. The problem comes when an accrual basis corporation deducts interest that is owed to a cash basis related party (shareholder), when it is not included in the shareholder' s income.
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