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 Stuart A. Bronstein on October 5, 2009, 1:33 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? Exactly when was the bankruptcy filed in relation to when the payment was made? That could be critical in determining both practical and tax issues. If bankruptcy was filed shortly after the payment, it could well be considered fraud if the contractor knew he was going to file bankruptcy but didn't disclose it. That would make it a theft loss. If it wasn't theft, but the bankruptcy was still filed in 2008, I'd think the bad debt loss could be deducted in that year. -- Stu http://downtoearthlawyer.com -- << ------------------------------------------------------- >> << 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 Arthur Kamlet on October 5, 2009, 1:35 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? Was it fraud? Did the contractor plan to take money with no intention of doing the work? Did your client file a police report claiming fraud? It seems the contractor will deny having evil motives. Just bad luck:-( -- ArtKamlet at a o l dot c o m Columbus OH K2PZH -- << ------------------------------------------------------- >> << 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 D. Stussy on October 5, 2009, 4:43 pm Please log in for more thread options > In article > >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 it fraud? Did the contractor plan to take money with no intention > of doing the work? Did your client file a police report claiming fraud? I not only agree with the above, I also note that as the payment was not intended to be a loan, it's not really a debt. I don't see anything which gives the taxpayer a choice between treatments. -- << ------------------------------------------------------- >> << 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 Wallace on October 5, 2009, 4:59 pm Please log in for more thread options >> In article >> >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 it fraud? Did the contractor plan to take money with no intention >> of doing the work? Did your client file a police report claiming fraud? > > I not only agree with the above, I also note that as the payment was not > intended to be a loan, it's not really a debt. not so. there are debts other than loans. According to IRS Publication 550: "Insolvency of contractor. You can take a bad debt deduction for the amount you deposit with a contractor if the contractor becomes insolvent and you are unable to recover your deposit. If the deposit is for work unrelated to your trade or business, it is a nonbusiness bad debt deduction." -- << ------------------------------------------------------- >> << 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 D. Stussy on October 5, 2009, 6:23 pm Please log in for more thread options > >> In article > >> >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 it fraud? Did the contractor plan to take money with no intention > >> of doing the work? Did your client file a police report claiming fraud? > > > > I not only agree with the above, I also note that as the payment was not > > intended to be a loan, it's not really a debt. > > not so. there are debts other than loans. > > According to IRS Publication 550: > "Insolvency of contractor. You can take a bad debt deduction for the amount > you deposit with a contractor if the contractor becomes insolvent and you > are unable to recover your deposit. If the deposit is for work unrelated to > your trade or business, it is a nonbusiness bad debt deduction." I disagree with the application. A mere deposit isn't a taxable event by itself. The insolvency triggers the taxable event. Such requires that the contractor is NOT insolvent at the time of the deposit. >From the OP: "The contractor did no work and was actually in bankrupcy."[sic] (NOT that he filed for bankruptcy after entering into the contract.) If the contractor was already insolvent at the time of the deposit, it's fraud and therefore the casualty deduction applies in 2008. -- << ------------------------------------------------------- >> << 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 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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