Gene E. Utterback, EA" <eagent[at]alliancetax.com> wrote:
- quote -

The LLC, which owned the assets, went under at the end of 2001.

- quote -

The loan was with a bank. The bank has turned a loan to the
LLC with four guarantors into four individual loans.

- quote -

Non-business bad debt came from making payments on a loan on
behalf of another. EBE came from making payments on a loan
incurred in his capacity as an employee of the LLC with no
ownership interest.

--
Bruce Davidson Cantor, CPA, JD
Admitted in Colorado

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"bc" <cantor2[at]ix.netcom.com> wrote:

- quote -

There is more to your situation that you post here:

1 - if the LLC owns the asset, why is any individual making
any payment on this loan regardless of how it is structured.
The LLC bought some equipment, which is financed by 4
separate loans - this doesn't change the fact that the LLC
owns the property. Why is your guy paying for anything?

2 - Was the original and renegotiated loan with the same
group that the equipment was bought from or was the loan
with a third party? If the renegotiation was with the
original company, the $30K reduction might be able to be
construed as a reduction in purchase price - but don't count
on it. Quite likely, the $30K will be reduction of debt
income that should be divided among the 4, so that your guy
now has $7500 in cancellation of debt income to report as
other income on his personal return.

3 - I don't understand what you think should might qualify
as nonbusiness bad debt or employee business expense. If he
is part owner in a piece of equipment that is used by him in
his job AND he makes the payments for it, then it might be
an employee business expense, but I have a real problem with
this concept for an employee who is NOT an owner in the
business.

Again, I would focus on my issue #1 - why is your client
making any payment on this equipment at all if it belongs to
the LLC? All his signature did was guarantee that he would
pay for 25% of it in the event the company defaults. For
the time being at least, this should have NO impact on his
tax situation at all.

Good luck,
Gene E. Utterback, EA

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Charles L DiSalvo" <Charles.DiSalvo[at]worldnet.att.net (nospam)> wrote:
- quote -

Charles, just wanted to say "thank you". We pulled the RR
and it fits our facts. Taxpayer gets business bad debt
deduction as he makes payments on the note, in our opinion.

--
Bruce Davidson Cantor, CPA, JD
Admitted in Colorado

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Charles L DiSalvo" <Charles.DiSalvo[at]worldnet.att.net> wrote:

- quote -

Guaranty was made to allow business to purchase equipment
which Taxpayer would be using as manager. No equipment, no
job.

- quote -

Loan was re-negotiated in 2003. Now split into four separate
loans. Before re-negotiation, loan was joint and several.
Taxpayer could have been made to pay entire loan and seek
contribution from other guarantors.

--
Bruce Davidson Cantor, CPA, JD
Admitted in Colorado

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"Charles L DiSalvo" <Charles.DiSalvo[at]worldnet.att.net> wrote:
- quote -

See Rev. Rul. 71-561

Charles DiSalvo, CPA

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"bc" <cantor2[at]ix.netcom.com> wrote:

- quote -

If the taxpayer did not own an interest in this LLC why did
they act as a guarantor? Was it to save or protect their
job. If so, this may be a business bad debt, because the
loan guaranty was made inconnection to his trade or
business.

If they have a right to recover payment from the 3 owners or
the LLC this debt may not be considered worthless until they
attempt to collect from them.

Charles DiSalvo, CPA

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Taxpayer was manager for an LLC. He was not a member. He
received a W-2 in 2001. In order to acquire a bank loan to
purchase the equipment used in the business, Taxpayer and
the three owners had to sign as personally liable on the
loan. All four were jointly and severally liable.

In 2003, the four signers negotiated with the bank to reduce
the balance due by $30k, split the note into quarters, and
each signer became separately liable on their own note.

Taxpayer is about to make first payment. I am attempting to
establish the tax consequences thereof. My primary
alternatives are non-business bad debt (Taxpayer is not in
the lending business) or unreimbursed employee business
expense (Taxpayer only became employee, and had repayment
obligation, in connection with loan).

Taxpayer will be in AMT no matter what happens with this
issue.

I'm having a hard time researching this in CCH. I'm just not
looking in the right place. I'd take answers, suggestions,
and research pointers.

Thanks.

--
bc

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