Verytaxing wrote:Are you saying that the bad debt is not deductible because it was made to a related party?
gatortaxguy wrote:You're overthinking this. The parties treated it as a loan, so report it that way. Advise your client of the potential recharacterization on audit and move on.
gatortaxguy wrote:You're overthinking this. The parties treated it as a loan, so report it that way. Advise your client of the potential recharacterization on audit and move on.
beardenjv wrote:gatortaxguy wrote:You're overthinking this. The parties treated it as a loan, so report it that way. Advise your client of the potential recharacterization on audit and move on.
I think the potential recharacterization on audit demonstrates that we're not overthinking this. The IRS and the courts can and do recharacterize things that are called loans as dividends.
But here's why I'm interested in jumping into the discussion: So let's say it's a dividend. When did that dividend happen? It sounds like it was more than 5 years ago. So the tax consequences of a dividend, of course, are that the shareholder is supposed to pay tax on it in the year received (assuming the shareholder isn't a C corp, etc.). So the deceased individual taxpayer should have reported it as dividend income and didn't. And now it's past the statute of limitations (probably even past the 6-year statute for gross income underreported by 25%), so he won't pay any tax on it.
Therefore, wouldn't dividend treatment at this point be the favorable interpretation of the facts? And you can tell the IRS "nanner-nanner-boo-boo" (not sure if there's an official attachment for that). Right?
How would you handle this (transactions from 5+ years ago that were recorded as a loan but should have been a dividend) if the corporation were still operating and the shareholder were still alive?
gusser wrote:taking a 250k deduction for bad debt will cause a large NOL. I'd rather not waive any large flags.
gusser wrote:If you treat it presently as a dividend, no 1099-DIV, no reporting?
Users browsing this forum: Google [Bot], Google Adsense [Bot], rkrcpa, Wiles, WiscoTax and 151 guests