Harlan Lunsford <hlunsfordnoway[at]bellsouth.net> wrote:

- quote -

Churches and their governing bodies are normally 501(c)3
corporations and can indeed file bankruptcy. The Archdiocese
of Boston recently gave serious consideration to doing just
that.

Depending on the polity of the particular church involved,
there may also be a governing body that has secondary
liability on its obligations.

--
Chris Green

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JMJRAD wrote:

- quote -

Actually I've never heard of a church going bankrupt.

But...... since a church conducts "business", just like
any other "business enterprise", ..... possible. yes.

cheer$,
Harlan Lunsford, EA in LA

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JMJRAD wrote:

- quote -

No, not unless you have already recognized taxable income
equal to the unpaid interest.

Regards,
Bill
~~~~
Associate Professor of Accounting
Longwood University
Department of Accounting, Economics & Finance
http://www.longwood.edu/staff/wpbrown/
Opinions expressed by me are mine, not my employer's.

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JMJRAD posted:

- quote -

In brief: No. Individual taxpayers are almost invariably
cash method, and income must be "received" before it can be
"lost."

Now, the original investment in church bonds -- should it
become worthless -- can at that time be written off. That
would be a Schedule D capital loss, treated as short term
(Part 1) with a statement attached explaining the
non-business debt, amount, etc.

Full details can be found in Pub 17, under Capital Gains and
Losses --subhead: Nonbusiness Bad Debts.

Here's a thought: If "bankruptcy" truly looms in the near
future, you may diminish your total loss by selling the
"nearly worthless" securities to a willing buyer, and
salvage at least some small residue of the orignal
investment. There are risk-takers who routinely take long
chances, knowing a small percentage will pay off ~big~.
Such a buyer may be hard to find, however.

Still, under the theory that "something is better than
nothing," it could be a worthwhile option, and it would have
the secondary benefit of ~establishing your loss~ for tax
purposes, so you could write-off the difference as a loss to
offset other current income.

The option suggested would have the added benefit of
finessing the issue of having the debt established as
"worthless."

Good luck.

Bill

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JMJRAD wrote:

- quote -

They first have to be included in income. Most individuals
are "cash basis" for their accounting method and therefore
will not have made such an inclusion.

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jmjrad[at]aol.com (JMJRAD) wrote:

- quote -

You don't have to pay tax on the interest you didn't
receive. You don't get a deduction on top of that.

If the church defaults on principal, you may have a capital
loss for principal that was not repaid in the year your
bonds become worthless.

--
Chris Green

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"JMJRAD" <jmjrad[at]aol.com> wrote:

- quote -

Well, yes, I suppose you might say you can. You get the
deduction by not including the interest in income. If, for
some strange reason, you use the accrual method of
accounting, you would accrue the interest on the due dates.
At the time it becomes clear the church will never pay the
interest, it could be deducted as a bad debt.

However, as you are probably on the cash method, the rule is
that if you didn't include the unpaid interest in income you
have a zero basis to write off. Sorry, no deduction.

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"JMJRAD" <jmjrad[at]aol.com> wrote:

- quote -

Cash taxpayers cannot deduct something they never got.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.

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An investment in church bonds went sour and "the church" has
not made interest payments for this year. Is there a method
that the mortgage loan interest not received can be claimed
as a loss on this year's tax return? Bankruptcy may be in
the future.

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