Stock loan treatment by IRS

A private party offered to loan money against my stock if I transfer the shares to the lenders name. A document signed by both parties will state the transfer is to secure a loan. Will the IRS treat the transfer as a sale or will they recognize that the transfer was for security purposes only. The loan is repayable in one year.

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Reply to
aristotle65
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The best way to do that is to give them a security agreement that allows them to put the stock in their name if you don't pay. This kind of arrangement can be dangerous from more than a tax perspective. Stu

Reply to
Stuart A. Bronstein

Whether or not this constitutes a transfer to the other party is a state property law question. I don't see the point of this exercise. Why not just pledge the stock as collateral for the loan, thus avoiding any question?

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

Are you being lent the full value of the stock, or a fraction? What happens when the lender takes the stock and runs away? I'd recommend escrowing it with a bank or lawyer; that's a lot safer for you, and looks much less like a sale.

If you repay it and get the stock back, you have a reasonable argument against it having been a sale. What if that doesn't happen? Seth

Reply to
Seth Breidbart

Tendering the shares as collateral for a loan should not be considered a SALE, provided you do NOT transfer them on the books of the company. The lender is merely holding the asset as insurance that you will payoff the loan. If the loan is not repaid, and the stock is forfeited to the lender, then you would have a sale (at the value of the forfeited loan balance). If you actually changed the name on the stock, you have made either a sale or a gift.

Reply to
Herb Smith

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