bad debt or theft?

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Subject Author Date bad debt or theft? Brew1 10-05-2009  Re: bad debt or theft? Alan 10-05-2009  Re: bad debt or theft? removeps-groups@yahoo.com 10-05-2009  Re: bad debt or theft? Brew1 10-05-2009  Re: bad debt or theft? removeps-groups@yahoo.com 10-06-2009  Re: bad debt or theft? Stuart A. Bronstein 10-05-2009  Re: bad debt or theft? Arthur Kamlet 10-05-2009  Re: bad debt or theft? D. Stussy 10-05-2009  Re: bad debt or theft? Wallace 10-05-2009  Re: bad debt or theft? D. Stussy 10-05-2009  Re: bad debt or theft? removeps-groups@yahoo.com 10-05-2009  Re: bad debt or theft? Wallace 10-05-2009  Re: bad debt or theft? Stuart A. Bronstein 10-06-2009  Re: bad debt or theft? Stuart A. Bronstein 10-06-2009  Re: bad debt or theft? Alan 10-06-2009  Re: bad debt or theft? Seth 10-06-2009  Re: bad debt or theft? Alan 10-06-2009  Re: bad debt or theft? D. Stussy 10-06-2009  Re: bad debt or theft? Brew1 10-11-2009
Posted by Brew1 on October 5, 2009, 12:52 pm Please log in for more thread options Have a client who made a payment up front in 2008 to a contractor for an addition to a rental property. The contractor did no work and was actually in bankrupcy. The client pursued the matter into 2009 and I told him that it would be a deduction in 2009. The client is not happy with me or the return I have prepared. Now I was thinking in terms of treating this as a bad debt--would it be correct to classify it as a theft (fraud) and would that make a difference in what year the loss is claimed? Thanks, -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Alan on October 5, 2009, 1:33 pm Please log in for more thread options Brew1 wrote: > Have a client who made a payment up front in 2008 to a contractor for > an addition to a rental property. The contractor did no work and was > actually in bankrupcy. The client pursued the matter into 2009 and I > told him that it would be a deduction in 2009. The client is not happy > with me or the return I have prepared. Now I was thinking in terms of > treating this as a bad debt--would it be correct to classify it as a > theft (fraud) and would that make a difference in what year the loss > is claimed? > > Thanks, > Normally, lost deposits with contractors who fail to perform are treated as nonbusiness bad debts when it is determined that the debt is totally worthless. I.e., there is no way to recover the deposit. This is taken as a short-term capital loss on Schedule D. A theft loss becomes an itemized deduction subject to the casualty rules (-$100, excess over 10% AGI) in the year you discover the theft. Whether or not what you describe was a theft depends upon intent by the contractor. The fact that the contractor was in bankruptcy procedures does not by itself show intent to defraud. Whether we have a bad debt or a theft, from the facts you present, it appears that no tax benefit would have been available in 2008 as recognition that there may have been a theft did not occur until 2009 or the ability to recover any part of the debt became zero in 2009. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by removeps-groups@yahoo.com on October 5, 2009, 2:26 pm Please log in for more thread options > Brew1 wrote: > > Have a client who made a payment up front in 2008 to a contractor for > > an addition to a rental property. The contractor did no work and was > > actually in bankrupcy. The client pursued the matter into 2009 and I > > told him that it would be a deduction in 2009. The client is not happy > > with me or the return I have prepared. Now I was thinking in terms of > > treating this as a bad debt--would it be correct to classify it as a > > theft (fraud) and would that make a difference in what year the loss > > is claimed? Was the up-front expense for the contractor deducted as a rental expense in 2008? > Normally, lost deposits with contractors who fail to perform are > treated as nonbusiness bad debts when it is determined that the > debt is totally worthless. I.e., there is no way to recover the > deposit. This is taken as a short-term capital loss on Schedule D. > > A theft loss becomes an itemized deduction subject to the > casualty rules (-$100, excess over 10% AGI) in the year you > discover the theft. In 2008 the theft loss is -$100, excess over 10% AGI, but in 2009 the loss is -$500, excess over 10% AGI. > Whether or not what you describe was a theft depends upon intent > by the contractor. The fact that the contractor was in bankruptcy > procedures does not by itself show intent to defraud. > > Whether we have a bad debt or a theft, from the facts you > present, it appears that no tax benefit would have been available > in 2008 as recognition that there may have been a theft did not > occur until 2009 or the ability to recover any part of the debt > became zero in 2009. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Brew1 on October 5, 2009, 4:42 pm Please log in for more thread options The 2008 return has not been filed yet; the client does not want to file without claiming the loss. To try and answer some of the other posts, the contractor had already filed bankruptcy when he accepted the money (I believe in August) and never did any work. The client did hire an attorney this year in an attempt to recoup the money--I am not certain that criminal charges were filed against the contractor. I believe if it is a bad debt, that we are looking at a 2009 deduction and the only possibility I saw for a 2008 deduction was if it should be classified as Casualty/ Theft. Thanks again. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by removeps-groups@yahoo.com on October 6, 2009, 11:47 am Please log in for more thread options > The 2008 return has not been filed yet; the client does not want to > file without claiming the loss. > > To try and answer some of the other posts, the contractor had already > filed bankruptcy when he accepted the money (I believe in August) and > never did any work. The client did hire an attorney this year in an > attempt to recoup the money--I am not certain that criminal charges > were filed against the contractor. I believe if it is a bad debt, > that we are looking at a 2009 deduction and the only possibility I saw > for a 2008 deduction was if it should be classified as Casualty/ > Theft. Thanks again. Couldn't it also be a rental expense on the 2008 return, specifically on the Schedule E? The amount was paid in 2008. The 10% + $500 of AGI rule might make the deduction worthless. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Fees paid to a company to settle credit card debt & cancellation of debt income March 17, 2010, 9:26 am Theft Loss November 24, 2006, 11:34 pm Bad Debt September 12, 2007, 10:05 pm old income tax debt November 14, 2007, 1:41 pm How to deal with 1099-C bad debt November 10, 2006, 2:02 am Non business bad debt deduction November 23, 2006, 2:12 am Non-business bad debt deduction January 15, 2008, 7:44 pm Bad Debt or Loss on Investment? 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