- quote -

Yes.

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Gene wrote:

- quote -

That is possible.

- quote -

Only if you previously reported the interest as income
pursuant to your method of accounting. No prior inclusion
-> no deduction.

- quote -

See Schedule D. However, see also "1245 stock" to see if that applies.

- quote -

Yes.

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Gene wrote:

- quote -

The reason you aren't getting an answer is because anyone
that answers them is going to have to make a number of
assumptions. The actual answer is "maybe" you can deduct
the loan--the maybe being assuming you can show that a bona
fide loan was made and you truly were never repaid (that is,
entity went broke and had no funds to repay you). How you
deduct it is another issue--most likely, assuming it's a
bona fide loan, it's deductible as a long term capital loss.

Of course, it *could* be this was actually capital stock
(people don't necessarily get the idea of the difference
when posing questions) or it even might have been income to
the corporation if you gave it money in exchange for
somethign of value. And, if it was capital stock, there's a
whole set of issues of whether it might qualify for ordinary
loss treatment.

On the question of the interest--generally you would get the
loss only if you had basis. Normally, you would have basis
only if you had included the amount in prior years income.
If you didn't do that, the answer is no.

Of course, if the loan was large enough perhaps you *should*
have picked up interest

Basically, your questions demands a whole set of additional
questions to be answered in order to give a correct answer
(or maybe even a possibly correct one). If the amounts are
at all significant, I strongly suggest you yourself to a
competent tax professional who works with closely held
busineses as soon as possible to work this out.

--
Ed Zollars, CPA
Phoenix, Arizona

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I've now twice sent these questions to the IRS without
receiving any answers, and so I'm hoping someone here can
shed light on this: my questions, not the IRS's help desk

+---

If I founded a "C" corporation in 1996 that is now
terminating business without repaying the personal loans I
made to it.

Question 1: Can I in any way deduct these bad personal loans
I made to the C Corp on my personal income tax return?

Question 2: If the answer to (1) is "yes" then can I also
deduct the non-paid interest that was due when the loan was
repaid? For example, 5.9% a year.

Question: Can I deduct the amount I paid for the stock as a
loss? If so, how?

Are there any IRS tax publications that cover these two topics?

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