4-6 Colleen, a US citizen, owns 99% of the stock of Aer Beer Limited, an Irish p

Question

4-6  

Colleen, a US citizen, owns 99% of the stock of Aer Beer Limited, an Irish private company that is a C corporation for US tax purposes. Her brother runs the company and owns the other 1% of the stock. Aer Beer is a very profitable company engaged in the beer business in Ireland and owns a manufacturing plant.. Colleen lives in Palm Beach wants to buy a new car. She goes to Bank of America to get a personal car loan and pledges her Aer Beer stock as collateral for loan. The loan agreement imposes no restrictions on Aer Beer.

Are there any tax consequences to Colleen as the result of this transaction?

Explanation / Answer

No there are no tax conderations. Interest to be paid on personal loan is not tax deductible and loan amount received in not an income to be taxable in hands of borrower. Thus there should be no tax effect although the source of income for Colleen is from outside USA. The money that she will be getting from Aer Beer would get taxed on its repartiation to USA and no sepreate tax effect would be given when she avails a loan.

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