Tina is the only shareholder of edgecombe corporation

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Tina is the only shareholder of Edgecombe Corporation. Tina's stock basis is $100,000. She materially participates in the business and receives an annual salary of $50,000. Current economic conditions have caused cash flow issues for the corporation so Tina needs to transfer $60,000 to the business. Tina is trying to determine the best way to structure the cash transfer: a capital contribution, a loan to protect the stock investment or a loan to protect her salary. From a tax perspective, how would you advise Tina to structure the transaction in the event economic conditions continue to decline and the corporation may have to file for bankruptcy? Support your position with primary tax authority.

Reference no: EM13555428

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