Borrowing Firm Funds Can Be Done Right Way

Scandals wrought by Enron, Worldcom and Arthur Andersen have made the mere mention of dipping into company coffers heresy. But it’s perfectly legal, and potentially prudent, to borrow money from a “C” corporation if the transaction is prepared properly.

Sam Fiser, manager of S.F. Fiser & Co. P.A. in Springdale, said pitfalls can arise when owners think of a company’s money as their own.

“The danger is when people treat it like right pocket, left pocket,” Fiser said. “When you dip in when ever you want to, the result is there’s no intention to pay the money back and that will bring unwanted tax problems from the IRS.”

Money can be pulled out of an “S” corp. as a dividend. But “C” corporations, which pay taxes on income, can build up capital and their owners may borrow up to $10,000 from that excess liquidity provided they abide by several rules.

It must be an “arm’s length transaction,” Fiser said, with evidence of repayment over time and finance charges above the applicable federal rate (AFR) will prevent unwanted tax liabilities.