Posted by Ben (NJ) on May 21, 2000 at 08:15:48:
Thanks, Dave, I think youre on target. the way you explained it makes perfect sense, I think the fact that one is a business entity and one a personal investment makes the difference.
Esoteric tax question- JHyre? - Posted by Ben (NJ)
Posted by Ben (NJ) on May 20, 2000 at 12:59:43:
In a discussion with a friend, I mentioned that I have
some personal money in tax-free muni bonds, I also happen to carry some business debt on which my company (sub chapter S) makes monthly interest payments. My friend said that the IRS may have have a problem with this arrangement.
I didn’t really understand why. I will ask my accountant on Monday but in the meantime does anyone know why this would be a problem?
Re: Esoteric tax question- JHyre? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on May 21, 2000 at 12:49:26:
I think Dave T hit the nail on the head. If under IRS debt-tracing rules the corporate debt is deemed to have been used to purchase tax-free debt, the IRS may- may- disallow the interest deduction. I have not looked at these rules in a while…my guess is that there is no problem so long as the corporate debt is CLEARLY kept within the corporation, paid for by the corporation, used solely for corporate purposes and not otherwise related to the muni-bonds.
John Hyre
Re: Esoteric tax question- JHyre? - Posted by Laure
Posted by Laure on May 21, 2000 at 08:23:46:
Have your corporation make a resolution to borrow the money at x interest rate and terms to repay, just like it was from a bank. Draw up a Note and a security instrument (Mortgage or UCC filing) and have them recorded. I wouldn’t think there would be a problem if you have all your documents in order. My C corp borrows money from me, personally, all the time. I set up a line of credit with myself ! LOL sounds silly, but it’s the paperwork and documentation that is the most important.
Laure 
Just a thought - Posted by Dave T
Posted by Dave T on May 20, 2000 at 23:43:05:
It could be that your friend was thinking that the IRS does not allow you to deduct interest on money borrowed to invest in tax-free instruments. If your business funds are comingled with your your personal funds, then the IRS may perhaps construe that borrowed money was used to purchase tax free instruments and disallow any interest deduction.
Perhaps that was what your friend had in mind when he made the comment. Just a thought. I am not a tax professional, so I may be way off base here.