Discussion:Partnership debt that can't be paid
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Discussion Forum Index --> Basic Tax Questions --> Partnership debt that can't be paid
Discussion Forum Index --> Tax Questions --> Partnership debt that can't be paid
| 8 July 2008 | |
| My client has a loan payable on their books. They file their taxes on an accrual basis. Should I be accruing (and thus taking as a deduction) interest on this loan even though I know that client doesn't have the ability or intent to pay off this debt? I am also not sure when this debt would be taken as income (to the extent they are not insolvent). The client was a spec builder and the last two homes were taken in a trustee sale in 2008 so the company should be closed out in 2008. I am working on the 2007 return. Any advice would be greatly appreciated! | |
| 8 July 2008 | |
| I forgot to mention. The debt has not been forgiven or cancelled. The lender is an individual. | |
| 9 July 2008 | |
| Entice him to sue your client to show his bona fides. When he does, countersue on some barely plausible pretext. Drive a hard bargain, and perhaps a settlement can be reached that will provide your client with the working capital to make it for another year. That's how the airlines would do it.
Seriously, Lrussel: are you sure you know your client's intent, for that matter, do you know that the lender will not sue? If it's an indiv., are you (cough) sure it was a bona fide loan to begin with? Who is this indiv.: dear old dad? | |
| 15 July 2008 | |
| The "lender" is an individual whom has involved with my client for many years in various business opportunities and has made money. In this company, he put money into the company in hopes of some good returns. My client calls it an investment. Since the "lender" was never listed as a partner on any of the tax returns, they my understanding is that they are a lender. At some point, the money was put on the books as a loan (all through my client still thinks it is not a loan and thus is saying "his investment went sour") per the lenders insistence and interest was paid. In 2006, the prior accountant accrued interest and this was taken as a deduction on their tax return (they are accrual basis - as none of this interest was paid). My concern is with taking interest expense as a deduction when the client has told me that they will not be paying it or the associated debt. But, I do not know if the individual will sue.
Do I look at GAAP for this if I can't find any IRS regs? | |
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