Debt from closed partnership

[Possi]

My clients lost a ton in their partnership. NOL was taken last year and carried back, so it is gone this year.
My question is this:
They are paying off a judgement for rent (for the closed restaurant) and paid a substantial amount to a lawyer regarding this judgement.
Is any of that tax deductible? I would think the legal fees because it had to do with the business. I'd LIKE to think the judgement for rent would as well because it was business related and if it wasn't paid when the p'nership was running, it obviously was not a part of those expenses.

[Possi]

"dumb question?"

Was that a dumb question?

[newbie]

It's not a dumb question. I don't know the answer, but I'll bump it back up to the top for you.

[veritas]

I would continue

filing the partnership return deducting the expenses until such time as their is no more activity.

[Possi]

closed

filing the partnership return deducting the expenses until such time as their is no more activity.

I didn't do the partnership returns and I don't do partnership returns at all. Their CPA did them and the partnership is closed now. I do not see specifically that it would be deductible, except in so far as legal expenses regarding income, on the Sch A 2% misc. That is my own elementary deduction though. Maybe I should call the CPA who did the partnership returns...???

Unless I get a "hoorah" here, I'm not taking the deductions.

Thanks y'all~~

[veritas]

I don't see why

you don't feel the expenses are not business expenses. The lease was an ordinary and necessary expense.

From TTB.

Date of termination. The partnership’s tax year ends on the
date of termination. For a partnership that terminated because
operations are discontinued, the date of termination is the date
the partnership completes the winding up of its affairs.

The other way a partnership terminates is when 50% of the partnership is sold.


I think the cpa screwed up.

[S T]

Could it be

That the partner or partners had personally guaranteed the lease, therefore it has to be paid after the partnership is closed. ??

Sandy

[Possi]

Cpa

I'll call the CPA and see if he can do anything with these expenses. Thanks y'all!

[Possi]

Final answer

I'll call the CPA and see if he can do anything with these expenses. Thanks y'all!

The CPA amended the personal return (originally prepared by me) and took the expenses (over 22k) on line 21 as a direct adjustment to income calling it "Expense related to defunct LLC" reducing the taxes by over 6k.

What do you think about that? Pretty simple, right? Yeah, for a CPA. Not for lil ol me!

Glad this one got wrapped up and I wanted to share the final answer with y'all.

[Gretel]

Thanks for sharing.

[jaybird]

That's and interesting approach. The CPA messed up, the partnership return should not have been finalized. Even if the partners said that everything was rapped up, the CPA should have advised that there may be things looming, and make extra certain. All of the expenses (which is all of what you had mentioned) should have been deducted and run through the K-1, plus any other losses that may have been suspended due to basis. But, in all practical sense, probably the same outcome. So in an audit, all that would change is more tax returns, the CPA getting paid more, and the same result.

Line 21 - If all else fails, plug it!

[Lion]

Schedule E

I had a partner of a closed partnership long ago with expenses he paid. At that time I was advised (boss? IRS?) to put expenses on Schedule E page 2 as if they'd been passed through from the partnership. That was before K-1 matching. Now, I wouldn't use Schedule E page 2 without a K-1. I lean toward Line 21.