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More particularly, petitioner contends that the “indirect loans”
were made by petitioner to partnerships or entities in which none
of petitioner’s shareholders individually held a controlling
interest. Finally, petitioner points out that some of the
partners or owners of the entities that received loans were not
shareholders of petitioner.
The specific concern raised by petitioner’s arguments
focuses upon petitioner’s shareholders’ partial interest in the
entity that receives the benefit of the below-market loan and in
the receiving entity. Although the borrowing entity receives the
full benefit of the indirect loan, petitioner’s shareholder(s)
are each only partially benefited by the loan because of their
less than complete ownership of the borrowing entity. An adjunct
question concerns the treatment of a nonshareholder of petitioner
who may be benefited because of his ownership interest in the
borrowing entity.
The statute includes “Any below-market loan directly or
indirectly between a corporation and any shareholder of such
corporation.” Sec. 7872(c)(1)(C). Indirect loans are
includable, but the statute does not specifically address the
possibility that indirect loans may ultimately benefit a person
or entity other than a shareholder or that the shareholder may
ultimately receive less benefit than the full amount lent. The
proposed regulations generally address indirect loans by
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