Bad Debt Deduction

[kpangelinan]

After reading about personal (non-business) bad debt deductions on the IRS.gov site, this needs to be claimed on Schedule D as a short term capital loss, but Topic 453 states that a separate statement needs to be attached to the return.

Does anyone know what statement needs to be attached and if so, does that mean the return needs to be mailed in manually?

Thanks for any help,

[solomon]

After reading about personal (non-business) bad debt deductions on the IRS.gov site, this needs to be claimed on Schedule D as a short term capital loss, but Topic 453 states that a separate statement needs to be attached to the return.

Does anyone know what statement needs to be attached and if so, does that mean the return needs to be mailed in manually?

Thanks for any help,

Regarding the worthlessness of the debt:

§1.166-2

(b) Legal action not required. Where the surrounding circumstances indicate that a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in the satisfaction of execution on a judgment, a showing of these facts will be sufficient evidence of the worthlessness of the debt for purposes of the deduction under section 166.

Although legal action is not required, attach to a paper return some proof.

Description as well as the amount and when it was due. Include the name of the debtor as well as any relationship. Finally, indicate why you believed it was worthless and any efforts to collect.

Actually, perhaps some software allows a pdf attachment with an e-file - not sure about that. In any case, a 8453 would not work.

[oceanlovin'ea]

check software

My software allows for a statement to be attached to a return. It can still be electronically filed.

Linda, EA

[Snaggletooth]

Related Party

Corporation loans $20,000 to 100% stockholder's brother.

Brother gets into family squabble. Refuses to pay. Loan is now several
years old.

Public auditor requests that the loan be written off as a bad debt.

Can this $20,000 bad debt be deductible??

[kpangelinan]

Thank you...

Regarding the worthlessness of the debt:

§1.166-2



Although legal action is not required, attach to a paper return some proof.

Description as well as the amount and when it was due. Include the name of the debtor as well as any relationship. Finally, indicate why you believed it was worthless and any efforts to collect.

Actually, perhaps some software allows a pdf attachment with an e-file - not sure about that. In any case, a 8453 would not work.

Very good, thank you!

[kpangelinan]

My software allows for a statement to be attached to a return. It can still be electronically filed.

Linda, EA

I thought mine did as well....I'll look into that...never really had to use, but I'm guessing it wouldn't allow attachments and copies and such, right?

[Davc]

They also want the payment history. And for the corporate loan if brother has not been treated in the same manner as an unrelated party, then no deduction.