What happens to loans in a plan to 5% owners when the corporation converts to an LLC which is taxed as a partnership? Since the LLC can't have loans to greater than 5% shareholders, are the loans deemed distributed as of the date of conversion? Does anyone know of any resources on this issue?

Thanks for your ideas.

Katharine Jungkind

I think that the answer is in your question. You now have a prohibited transaction.

I think it is DOL Op 84-44A that applies here.