The American Institute of CPAs has submitted comments to the Internal Revenue Service in support of its proposed regulations for clarifying the treatment of shareholder debt of S corporations.

The AICPA also suggested that the IRS include in the regulation an example it provided to help tax preparers better understand basis for S corporation shareholders.

“The proposed regulations will, when final, substantially reduce the uncertainty clouding the proper treatment of shareholder debt under section 1366 of the Internal Revenue Code,” AICPA Tax Executive Committee Chairman Jeffrey A. Porter, CPA, wrote in a letter Tuesday to the IRS.  “We appreciate and applaud the Service for adding more clarity and fairness in tax administration.”

In an effort to provide further clarity, the AICPA recommended and offered specific language for inclusion in any final regulations regarding the issue of bona fide indebtedness.

Porter said the AICPA believes it is important to include its example because “members of the AICPA’s S Corporation Tax Technical Resource Panel recently presented on the subject of basis in S corporation stock and debt at the IRS Nationwide Tax Forums. Based on this experience, we believe the proper understanding of basis is still an issue for many tax preparers.”

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