Loan from shareholder vs. capital contribution has been a dicey item for decades. It has often been the subject of audit issues. I have been out of the business for a number of years, but to my knowledge, there is no hard and fast rule.
When cash is transferred to a closely held corporation, is the transfer a loan or a capital contribution? The transfer is treated as a loan if there is an unconditional obligation to repay it. If there is no unconditional obligation to repay, then it should be treated as contribution to capital. In looking at the obligation to repay, are the funds being treated as they would from an unrelated third party? If not, then the treatment of such funds as loans might be suspect.
When there is a dispute, the courts look at factors such as the presence or absence of a written note, scheduled payments, a fixed interest rate, interest payments, collateral and a sinking fund. In addition, courts examine the corporation’s use of the transferred funds, its capital structure and its source of funds to make repayment.
Those are the key factors in classifying loans vs. contribution to capital. As to why the CPA firm apparently split some of the funds, who knows, unless your husband told them something verbally that made them split the classification. You should probably ask the CPA firm for their records as to why they classified the funds in the manner they did.
I also suggest that you consider the rules of IRC Section 7872(c)(1)(C), corporation - shareholder loans. Especially if the funds classified as loans do not carry any stated interest and interest has not been paid.
I hope that helps.
**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**
