News Archive: Ask the Professional - My single member LLC has borrowed money from several investors and then loanded the money to my wholly owned S Corporation to develop properties. Are there any special considerations I should be concerned about?

For Immediate Release:
October 09, 2009

JAMES KOHLES, Chairman of the Board
jkohles@rina.com • 925-210-2180
1220 Oakland Blvd., Suite 300
Walnut Creek, CA 94596 • www.rina.com

Q. My single member LLC has borrowed money from several investors and then loanded the money to my wholly owned S Corporation to develop properties. Are there any special considerations I should be concerned about?

A. An often overlooked result from using a single member LLC as a conduit in this way, is that it can create a nonrecourse situation for you as the owner of both the LLC and the S Corporation. While limited liability is the primary benefi t of the LLC, the amounts advanced to the S Corporation by the LLC are nonrecourse to you as the sole shareholder. Therefore, you are not at risk for those loans, and losses incurred by the S Corporation could be limited. The losses may not exceed your own directly invested capital amounts and/or previously taxed but undistributed income, if they do, you would likely not be able to deduct those losses.