Discussion:Bad debt categorization
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| Revision as of 19:40, 9 January 2009 RoyDaleOne (Talk | contribs) (Basis issue asid) ← Previous diff |
Revision as of 20:58, 9 January 2009 HAPPY TAX (Talk | contribs) (I had a client w) Next diff → |
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| I suggest the TP was not the business of loaning money; which is a very difficult tax position to sustain.}} | I suggest the TP was not the business of loaning money; which is a very difficult tax position to sustain.}} | ||
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| + | {{ForumReplyPost|UserID=HAPPY TAX|Date=9 January 2009|Text=I had a client with virtually identical circumstances. On his 2006 return, he reported it, correctly, as a nonbusiness bad debt. But by the time his 2007 return rolled around, he had, according to him, been told by several anomymous advisers and CPAs (some of whom were connected with the original debt which had been defaulted on) that it met the criteria of a business bad debt. I re-researched it and gave him excerpts from the publications and references which I maintained made it clearly a nonbusiness bad debt, plus several tax court cases based on circumstances essentially identical to his. I suggested he seek additional opinions based on the references I had gathered. He came back about 10 days later and said, no doubt about it, nonbusiness bad debt. I think it was the tax court cases that in the end made it unequivocable for him. }} | ||
Revision as of 20:58, 9 January 2009
Discussion Forum Index --> Advanced Tax Questions --> Bad debt categorization
Discussion Forum Index --> Tax Questions --> Bad debt categorization
| 9 January 2009 | |
| TP (a shareholder/employee) had documented loans to Sub S corp at the time of its going out of business. Company had little cash, but sold some assets and took a promissory note in payment, which they later assigned to the TP as repayment against his outstanding loans. The promissory note is properly prepared and recorded so there are no issues on that point
After 3 years the party obligated on the promissory note defaulted and TP filed suit and received a judgement (which is unlikely to ever get collected). Would you categorize this as a business bad debt - the logic being "thats it has a business origin" or once the TP accepted the promissory note it really became a personal bad debt. My leaning is toward business debt, but its a bit of a gray area. | |
| 9 January 2009 | |
| you also have the issue of basis in the note, which may be a lot less than the face amount owed | |
RoyDaleOne (talk|edits) said: | 9 January 2009 |
| Basis issue aside, my comment is that I don't see how you have a business bad debt.
Was the TP in the business of loaning money? I suggest the TP was not the business of loaning money; which is a very difficult tax position to sustain. | |
| 9 January 2009 | |
| I had a client with virtually identical circumstances. On his 2006 return, he reported it, correctly, as a nonbusiness bad debt. But by the time his 2007 return rolled around, he had, according to him, been told by several anomymous advisers and CPAs (some of whom were connected with the original debt which had been defaulted on) that it met the criteria of a business bad debt. I re-researched it and gave him excerpts from the publications and references which I maintained made it clearly a nonbusiness bad debt, plus several tax court cases based on circumstances essentially identical to his. I suggested he seek additional opinions based on the references I had gathered. He came back about 10 days later and said, no doubt about it, nonbusiness bad debt. I think it was the tax court cases that in the end made it unequivocable for him. | |
