Where and how to report?

Technical topics regarding tax preparation.
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28-Apr-2014 8:29pm
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Baltimore/DC
Question for tax pros.How would you approach this?

Client is a solo member (doctor) who formed LLC in Maryland in 2016. After running his business for a year, he quickly figured out that it was too costly to run, and decided to transfer it to someone else. He transferred the business to an acquaintance (signed contract). The new owner never registered himself as the owner of the LLC with the state.

Medical equipment was purchased using three separate orders. He signed 2 and the new owner fraudulently signed 1. I am also questioning the legitimacy of the business transfer. Is that a potential issue here even if a contact exists?

The business never had profits and he ended up having to pay fees to lawyers to settle the debt on the equipment that was used in someone else’s company. The medical equipment debt was about $122K. In 2019, he also paid one lawyer about $4000 to settle the business debts and another $5000 that is helping him with the fraud case.

Client is asking how to take the loss on the tax return for the business debts and the lawyer fees. Would this be on Schedule C? Or would this be business casualty and theft loss?
 

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