a owns 60%, b owns 20%, c owns 20%. A owes S corporation $100,000. Proposal, making all 3 shareholders 1/3 each, forgiving the amount A owes Corp. Thanks

Since S corps typically pass corporate profits and losses through to shareholders, who then report on their 1040s, the shareholder will have to report the forgiven debt/loan as ordinary income on his return. If the loan is recharacterized as a distribution and the shareholder doesn't have sufficient tax basis in his stock, then a taxable gain will result. Business bad debt is deducted on the same tax form where the income would have been recognized. Assume there was a note from the S corp. in the case of a S-corp that would be on 1040 Sch-E, page 2