How does the IRS treat Shareholder Advances to Subchapter S
Corporation Shareholders?

For instance, a 2 owner (51%/49%) S Corp takes Shareholder Advances to
put a new addition on their house.  The money is technically a loan to
the shareholders and calculated as an asset on the balance sheet of
the company.

But, what does the IRS say about that when those Shareholder Advances
are not repaid?  Is there a time limit?  How do you determine an
appropriate rate of interest for such advances when they are simply
personal charges on the corporate credit card?

I need to know, case references if you have them redily available,
what the rules are and what the IRS does during an audit to
recalculate the Shareholder Advances (i.e. call it a constructive
dividend, only penalize for not paying the interest, etc.)

I've got to have an answer by Thursday morning, 7/15/04!  So, speed
recieves nice tip!! :)

Debt forgiveness is considered to be the same as a dividend to the
shareholder.  Simplistically, he/she took money and never gave it
back, no different from a dividend.=)
http://www.calbar.ca.gov/calbar/2cbj/02mar/mclestdy.htm