Purchased business asset-never delivered

[solomon]

I looked up the referenced code section and all I found was the bare statement that a transaction having a profit motive or made in the course of business is a deductible business loss. I didn't see where the other party has to be in violation of State Law and I didn't see how to deduct.

From IRB 2004-16:

Whether a loss constitutes a theft loss is determined by examining the law of the state where the alleged theft occurred. Edwards v. Bromberg, 232 F.2d 107, 111 (5th Cir. 1956); Viehweg v. Commissioner, 90 T.C. 1248, 1253 (1988). Thus, to claim a theft loss, the taxpayer must prove that the “loss resulted from a taking of property that is illegal under the law of the state where it occurred and that the taking was done with criminal intent.” Rev. Rul. 72-112, 1972-1 C.B. 60.

Regarding where to report this type of theft (assuming it is theft), that is part of the reason for Sec. B of Form 4684.

[erchess]

Puzzled

Assuming the dealer is in violation of his state law, I think §165(c)(1) would be the appropriate treatment. This then would go in Sec. B of Form 4684 and thus end up as an ordinary loss on Form 4797.

I looked up the referenced code section and all I found was the bare statement that a transaction having a profit motive or made in the course of business is a deductible business loss. I didn't see where the other party has to be in violation of State Law and I didn't see how to deduct.

[solomon]

Assuming the dealer is in violation of his state law, I think §165(c)(1) would be the appropriate treatment. This then would go in Sec. B of Form 4684 and thus end up as an ordinary loss on Form 4797.

[S T]

Question

Hmm, would it be a business bad debt, or a theft loss?

Sandy

[erchess]

Business Bad Debt is an Ordinary Loss

A business bad debt of a Sch C Business is deducted on the Sch C. However I think he needs to be able to show that he consulted an attorney before simply concluding on his own that going to court would not be productive.

[JenMO]

Client ordered a trailer from a dealer in another state. Went to the bank, borrowed the money, sent it, never received the trler. It's been over a year, and no trler. To hire a lawyer and try to force the issue would cost about as much as the trler, and client doesn't think he will ever see the trler or the money. (Why pour more money into a dark hole?) This would have been a depreciable business asset. The note at the bank will have to be paid back with business money. Where is this deducted? On the Sch C (so to be a deduction from SE also)?