signature loan

[oceanlovin'ea]

I think I know the answer to this question but I will ask anyway.....just because we are all a little loopy right now.

Client has Schedule C business. About 3 years ago they had their return audited and the gentlemen (now deceased) who was preparing their return took many deductions that they didn't have and they ended up owing IRS LOTS of money on 2 or 3 years of returns. They have been making payments on this for about 3 years.

Client is selling the business and retiring. They just wanted this debt to the IRS to be done with. So they went out and got a signature loan at credit union and paid off the IRS. Since this debt was definitely on the business part of their return, would the interest on this loan be deductible to the business for this year?

Linda, EA

[S T]

Thought, is if the loan/interest can be sourced to the biz part of the loan, then it would be deductible on the Biz Schedule

I had an audit on this several years ago - and since I could source the funds to biz, IRS allowed the interest deduction

I don't have a cite for you

Sandy

[veritas]

the loan is to pay

income taxes of the individual?


This has been nixed.by the IRS.

See page 4-10 in TTB.

[oceanlovin'ea]

The errors and additional tax were based on the schedule C of the taxpayer. Personal part of return had no mistakes. So it was all business related.

She took out a personal loan to pay off IRS but the bill with IRS is definitely related to the business.

Linda, EA

[WhiteOleander]

I believe the IRS considers that interest to be personal interest. It was taken out to pay personal income taxes.