Purchased business asset-never delivered

[kaimana]

"only then can it be deducted and at that time theft/loss form linked to Sch C would be the appropriate way to deduct it"

[newbie]

1. it does not qualify as a deduction on any form unless and until it is documented that the money paid cannot be recovered.
2. it cannot be depreciated on Sch C because it was never received.
3. Like any other "loss", once it has been documented as a loss by means of criminal, civil or other action...only then can it be deducted and at that time theft/loss form linked to Sch C would be the appropriate way to deduct it.

If it has been documented as a loss by means of criminal, civil or other action where on schedule C would you deduct it?

[kaimana]

1. it does not qualify as a deduction on any form unless and until it is documented that the money paid cannot be recovered.
2. it cannot be depreciated on Sch C because it was never received.
3. Like any other "loss", once it has been documented as a loss by means of criminal, civil or other action...only then can it be deducted and at that time theft/loss form linked to Sch C would be the appropriate way to deduct it.

[Jesse]

It may not seem fair but, unless it's inventory I do not believe you can take a Schedule C deduction. I think you need to follow as Solomon suggested.

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.

From Form 4797 it is then entered on page one of Form 1040; you do not enter the amount on Schedule C.


Look over Publication 547: http://www.irs.gov/publications/p547/ix01.html

However, I've been wrong before!

[Zee]

So, if we prove theft by fraud, I can deduct on Sch C? if only considered bad debt, then Sch D, short term loss? We can prove no trler, bank has records of loan and money sent, and there will be no registration of trler because trler was not received. If TP had received trler we could exp179 it, so why would we try to get a deduction for a loss we don't deserve. I have told TP, if eventually they would receive the trler ( they say they won't ever get it) we would have to report.

IMHO, I would classify this as theft loss (cash) and take a 100% deduction on the Schedule C, but only if the taxpayer could document his attempts to contact the seller with no avail and after reporting the incident as a theft loss to the local police (and obtaining a copy of the report)in the seller's state.

I stand corrected. I also agree with Soloman's earlier post, this is not a Schedule C deduction:

Originally Posted by solomon View Post
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.



Here's a link to Revenue Ruling 2009-9 that might help. But, it is more related to an investment loss.

http://web20.nixonpeabody.com/globaltaxblog/Blog%20Attachments/Revenue%20Ruling%202009-9.pdf

[JenMO]

So, if we prove theft by fraud, I can deduct on Sch C? if only considered bad debt, then Sch D, short term loss? We can prove no trler, bank has records of loan and money sent, and there will be no registration of trler because trler was not received. If TP had received trler we could exp179 it, so why would we try to get a deduction for a loss we don't deserve. I have told TP, if eventually they would receive the trler ( they say they won't ever get it) we would have to report.

[newbie]

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)?

This is clearly theft by fraud...he should report it to the police and deduct it as a theft on Sch C.

"Will be paid for" if it hasn't yet been paid for then why pay for it. If it has been paid for and not delivered perhaps the payment can be pulled. I don't see how you can expense it on Sch C if you never got it; Or take a deduction for it unless and until there is some proof that it will not be delivered.

You don't have a loss until you have some documentation that the order will not be honored and the money has not been returned. Criminal action, civil action or other attempts to be reimbursed for any monies paid is necessary before this item can be deducted in any way on the tax return.

OP said: Went to the bank, borrowed the money, sent it, never received the trler.

If deprec starts when placed in service it was not or should not have been expensed on sched C. Where does "Will be paid for" come into the picture?

So are you saying if theft by fraud sched C? If no proof SOL?

[kaimana]

"Will be paid for" if it hasn't yet been paid for then why pay for it. If it has been paid for and not delivered perhaps the payment can be pulled. I don't see how you can expense it on Sch C if you never got it; Or take a deduction for it unless and until there is some proof that it will not be delivered.

You don't have a loss until you have some documentation that the order will not be honored and the money has not been returned. Criminal action, civil action or other attempts to be reimbursed for any monies paid is necessary before this item can be deducted in any way on the tax return.

[solomon]

The client told me when we did 07's return that he had ordered this trler and had not yet been delivered. The trler mfger is several states away, I believe he ordered on line ( and was probably too trusting). He took out a note at the bank for this trler which I would think would be documentation for it, anyway. He says he has made calls, I don't know if he went to the manufacturer, but I will find out. If it is a viable loss, I think it should be deductible on the Sch C, as it will be paid for with Sch C funds. I will make sure he has or will make attempts to collect and have documentation for this. thanks for the imput.

There are no "Sch C" funds as such with a disregarded entity.

[JenMO]

The client told me when we did 07's return that he had ordered this trler and had not yet been delivered. The trler mfger is several states away, I believe he ordered on line ( and was probably too trusting). He took out a note at the bank for this trler which I would think would be documentation for it, anyway. He says he has made calls, I don't know if he went to the manufacturer, but I will find out. If it is a viable loss, I think it should be deductible on the Sch C, as it will be paid for with Sch C funds. I will make sure he has or will make attempts to collect and have documentation for this. thanks for the imput.

[solomon]

From Form 4797 it is then entered on page one of Form 1040; you do not enter the amount on Schedule C.

I was giving the poster the benefit of the doubt in knowing that much.

[Zee]

I suppose it could be fraud, but that information isn't available from the post. The seller may have simply closed, filed for bankruptcy, etc. But, it wouldn't hurt to try both approaches to document the loss.

[Jesse]

Still learning.....

This is clearly theft by fraud...he should report it to the police and deduct it as a theft on Sch C.

Is there a special rule for theft by fraud? If not, I respectfully disagree in the deduction on Sch C.

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.

From Form 4797 it is then entered on page one of Form 1040; you do not enter the amount on Schedule C.

[kaimana]

This is clearly theft by fraud...he should report it to the police and deduct it as a theft on Sch C.

[Zee]

As indicated in other threads, If he can't hire an attorney, why not use Small Claims Court? The cost is minimal. However, I would think if the contract was completed where he lives, he would use a local Small Claims court. Obviously, the seller won't show up and he'll be granted a judgement. Then, he can contact the Sheriff where the seller does business to collect. If it's uncollectible, it will be well established and documented at that point and deductible on the Schedule C as a business loss(IMHO).
Wherever it's deducted, there must have been a reasonable to attempt to collect.