Lawsuit final judgment 2012 check received 2013

[sandigi]

Client invested in a Ponzi scheme and wrote off the loss in prior years. Order and Final Judgment was on 12/21/2012 and she received approximately 10% of investment. Check date is 01/30/2013 and was received in February 2013. Which year do we report the income?

I think 2013 because that is when money was received, but I looked all over the IRS Audit Technique Guide and cannot find answer.

Please help.

[Koss]

Cash vs. Accrual

If the taxpayer is on the cash method of accounting, then the income should be reported in the year she actually received it.

BMK

[sandigi]

Thank you Koss

That is what I thought.

[sandigi]

No 1099 MISC for lawsuit settlements

This is the 2nd client this year who received a lawsuit settlement and did not receive a form 1099 MISC. Both were from financial investments gone bad. I wonder why they are not getting form 1099?

[DMICPA]

timing is everything

Just found out a client (who has dementia) was involved in a lawsuit from 2001. She lent someone $70,000 and did not get repaid so she got a court judgment in 2002 but the guy never paid it. I suspect the prior accountant who is no longer around wrote the debt off as she has a $40,000 short term loss carryover from way before me. Well, just prior to her becoming disabled with advanced dementia, she had an attorney look into the old judgment and in 2013 was awarded $50,000 and the checked was deposited into her bank account.

Now I am sitting here with $50,000 to offset the loss carryover of $40,000 IF this is the same bad debt that was written off. If it is not, then she will have a $20,000 additional short term loss.

Not too much of a tax deal but it is something to consider. I am trying to get her relatives to dig up the old tax returns if possible to trace the source of the short term bad debt.

[sandigi]

What's the difference?

Just found out a client (who has dementia) was involved in a lawsuit from 2001. She lent someone $70,000 and did not get repaid so she got a court judgment in 2002 but the guy never paid it. I suspect the prior accountant who is no longer around wrote the debt off as she has a $40,000 short term loss carryover from way before me. Well, just prior to her becoming disabled with advanced dementia, she had an attorney look into the old judgment and in 2013 was awarded $50,000 and the checked was deposited into her bank account.

Now I am sitting here with $50,000 to offset the loss carryover of $40,000 IF this is the same bad debt that was written off. If it is not, then she will have a $20,000 additional short term loss.

Not too much of a tax deal but it is something to consider. I am trying to get her relatives to dig up the old tax returns if possible to trace the source of the short term bad debt.

I don't understand. What s the difference IF this is the same bad debt? Isn't the loss in 2013 the same either way?
(40,000) carryover and now 50,000 gain. Net 10,000 gain. What am I missing?

[DMICPA]

Is it the same short term loss

That is the question. The administrator has went back to the old tax returns and is missing the 2001-2002 returns but the short term loss does not appear to be near the same amount as the note balance so it may be something different and not the note bad debt.

If it was the same matter, I wouldn't have posted this. Now it looks to be a different short term loss. The client has no spouse or anyone who can cleanly solve this.

Since the amounts do not reconcile to the posted short term loss from 2003, I am going to take it as a non business bad debt this year as the case is finally settled.

On the tax return itself, it is limited to $3,000 and the client will never have a filing requirement again after this year.

I did not want to assume that the short term loss carryover in 2001-2002 is the same debt as the one settled in 2013.

I see no compelling evidence to pick up $50,000 income and assume the prior carryover is related to this $50,000. I cannot prove the past but I can prove the present. It will turn out to be a collection of $50,000 and a basis of $70,000 netting a loss of $20,000 rather than a gain of $10,000.