schirallicpa Posted May 31, 2011 Report Share Posted May 31, 2011 I have a client who was a shareholder in a corp that just dissolved. The corp owed her $98K. Does this go as a worthless investment on Sch D? Or can she take elsewhere? Little too warm for the brain this afternoon.... Quote Link to comment Share on other sites More sharing options...
cred65 Posted May 31, 2011 Report Share Posted May 31, 2011 Possibly a business bad debt depending on the circumstances. It would be an ordinary loss on Sch 4797. The business nexus required for deducting a bad debt under section 166(a) exists where the dominant motive in incurring the debt was protecting or enhancing the taxpayer’s trade or business. Dagres, 136 T.C. No. 12 Filed 3/28/2011 Quote Link to comment Share on other sites More sharing options...
schirallicpa Posted May 31, 2011 Author Report Share Posted May 31, 2011 ok..... I found Sec 166 and read up on what I could. Leads me to the next question- Is her stock in the corp (29K) a 4797 loss or a Sch D loss. I had originally put that on Sch D as worthless stock. I am also now thinking of another client that had invested in his son's company that went belly up. That I had called worthless on Sch D limited to $3K loss. Maybe that should have been 4797. Quote Link to comment Share on other sites More sharing options...
OldJack Posted May 31, 2011 Report Share Posted May 31, 2011 Maybe a form 4797 sec.1244 loss, probably not a form 4797 business bad debt, likely a form Sch-D capital loss. Quote Link to comment Share on other sites More sharing options...
cred65 Posted May 31, 2011 Report Share Posted May 31, 2011 ok..... I found Sec 166 and read up on what I could. Leads me to the next question- Is her stock in the corp (29K) a 4797 loss or a Sch D loss. I had originally put that on Sch D as worthless stock. I am also now thinking of another client that had invested in his son's company that went belly up. That I had called worthless on Sch D limited to $3K loss. Maybe that should have been 4797. Her Stock was probably Sch D. Was the father who invested in son's business active in the trade or business? Ownership %? Did he receive a salary? Was the investment classfied as a loan or for equity? There are a number of US tax court cases and generally the court finds for nonbusiness bad debt depending on the circumstances. Also review Lykins, T.C. Memo. 1996-273 filed 6/12/96 Quote Link to comment Share on other sites More sharing options...
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