Discussion:Business bad debts

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Discussion Forum Index --> Advanced Tax Questions --> Business bad debts

Discussion Forum Index --> Tax Questions --> Business bad debts

Pmcaction (talk|edits) said:

18 April 2011
A taxpayer loans money to a partnership to which he is a limited partner and the compnay folded and now the debt is worthless. How would this be deducted?

Would the results be the same if the entity to which he loaned the money to was a corporation?

Thank you.

AmirK (talk|edits) said:

18 April 2011
I would say it is a non-business bad debt. Should be reported as short-term capital loss regardless of how long the debt was outstanding.The result would have been the same even if the borrower was a corporation, unless the lender was an employee of the corporation and he loaned the money to protect his employment.

Marcilio (talk|edits) said:

22 April 2011
Was there a bona fide loan document, or was this a capital call? If it truly is a documented loan, it is a business bad debt.

UIL No. 0162.25-14

"...The taxpayers further argue that legal and accounting fees and costs incurred by a limited partner are deductible under section 162 because a partner is considered to be in the trade or business of his partnership. To support this position the taxpayers rely on Butler v. Commissioner, 36 T.C. 1097 (1961)acq., 1962-1 C.B. 3, where the Tax Court found that loans made by a limited partner were made in furtherance of the business of which he was a limited partner and were proximately related to the partnership’s business activities. The court found that the taxpayer’s financing was a “vital factor” in the existence of the partnership. Id. at 1106. Thus, the court held that the taxpayer was entitled to a business bad debt deduction under section 23(k)(4) of the Internal Revenue Code of 1939."

RoyDaleOne (talk|edits) said:

22 April 2011
Facts, facts and facts win the day. Where do the facts fall?

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