"Phil" <thinkofanamefast[at]aol.com> wrote
- quote -






Um, no. Sorry. But he's only at a tax loss for the amount of cash he
actually lost. If that's been recovered already, then the remainder - the
unpaid interest, etc and so on - was never in his possession, was never
recorded or reported as taxable income, so there is nothing to deduct beyond
that.

Legal fees may be deductible on Schedule A though.




--
Paul A. Thomas, CPA
Athens, Georgia

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My dad lent his brother-in-law a substantial amount of money 10 years
ago, and never paid it back due to his new wife's need to live well.
After 7 years in court, we got back the approx. amount of the loan,
plus a judgment for much more. That was all the money our lawyers
could get their hands on (pure luck...we had the number of a CD they
were hiding). Soon after that they went into bankruptcy and my dad is
a major creditor, but never collected on this and never will. So we
are wondering if this large uncollected amount is deductible, even
though it exceeds original loan.

I found a similar tax case online - but it involved personal injury
judgment so no actual monetary loss other than the uncollected
judgment- with the following written in the final judgment:


Section 165(c) provides a deduction from income for
taxpayers who incur an uncompensated loss relating to a trade or
business, to a transaction entered into for profit, or to a
casualty resulting in an uncompensated loss of property


So my question is, even though my dads business is not money lending,
it was a "transaction entered into for profit" in the sense that a
market interest was mentioned on the note. Or does the fact that he
primarily did it out of familial loyalty outweigh that?

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >