I have an S-Corporation and the forgiven loan, in conjunction with cash distributions, also resulted in a reduction in retained earnings for me. It is my understanding that starting last year the IRS required stock holders in an S-Corp to disclose the “basis” in their stock on their personal tax returns in association with imputing their K-1 information. Turbo tax did not prompt me to do that last year so I will be looking into how to accomplish that this year. It looks to me like the amount of the forgiven loan essentially reduces my stock basis by a similar amount so I will ultimately pay taxes on this forgiven loan amount some time down the road when I sell or dispose of the corporate stock.
