Disposition of Business Asset

[GIMoe]

Background:
My client has a Sch C truck driving business. Hires mostly family members to drive his trucks as ICs and issues them 1099 Misc. In July 2006 he purchased another truck which was driven by a brother-in-law. Sometime in Sep 2006 brother-in-law takes off to another state with the truck and doesn't come back. In effect, the truck has been stolen from my client. In order to keep the peace with his wife, my client does not file a police report or pursue getting his truck back. In fact, at some point this year (2007) his wife is going to transfer the title to her brother's name. Purchase price of truck is $8000. Did I mention, this same brother-in-law will not give my client his SSN for the 1099 Misc.

Question:
How should the "disposition" of this be handled? Should this be treated as a business casualty/theft? Or, since my client is not pursuing getting the truck back, should it be treated as a gift? Or, should my client add the value of the vehicle to his brother-in-law's 1099 Misc so he could deduct the value as wages paid?

I'm leaning towards adding the value to the 1099 Misc and capture the value of it that way, but I would appreciate any thoughts and views on this.

[Gretel]

Your client should get a divorce.

Anyway, since title will be transferred to brother you hardly can speak any longer of a theft. Look like a disposition of the truck to me at FMV.

Unless, your client gets divorced and files a police report.

[GIMoe]

Be that as it may...

Your client should get a divorce.

Anyway, since title will be transferred to brother you hardly can speak any longer of a theft. Look like a disposition of the truck to me at FMV.

Unless, your client gets divorced and files a police report.

...since I am neither his spirtual advisor or his lawyer, I can only advise him as it pertains to his taxes. I agree that the option to claim as theft is not really a valid option. I only included it originally because, well, because that is what actually happened. Anyway, I was hoping to bounce it off the board to see if maybe there was an option I missed, or is the best option to claim it on the brother-in-law's 1099-Misc? Any thoughts out there?

[erchess]

I specifically think that calling a theft

a casualty requires reports to the police and, if the vehicle was insured against theft, to the insurance company. Should the IRS open the return they will almost surely ask for copies of those reports.

However, I would like to know whose name is on the title to the truck and whether VA is a community property state. If the wife's name is on the truck or if his name is on the truck and VA is a community property state, his wife can gift her interest in the truck and perhaps the whole truck to her brother. If Virginia is a community property state or the wife's name is on the truck, then I would get a legal opinion as to whether husband's half interest in the truck may be added to the 1099. I believe it is also supposed to be the company's responsibility to obtain the driver's ssn before he drives a mile. I am hot sure whether you can file a 1099 misc without the ssn.

I certainly agree with Danielle about his getting a divorce. He might then be able to file police and insurance reports on at least his half of the lost truck.

[GIMoe]

a casualty requires reports to the police and, if the vehicle was insured against theft, to the insurance company. Should the IRS open the return they will almost surely ask for copies of those reports.

Agreed.. can not go casualty/theft route since there will be no police reports or charges pressed.

However, I would like to know whose name is on the title to the truck and whether VA is a community property state.

I believe that both husband and wife's name is on the title (will have to verify). VA is not a community property state.

I certainly agree with Danielle about his getting a divorce. He might then be able to file police and insurance reports on at least his half of the lost truck.

Understood, but again, not really my place to advise that.

[solomon]

Is it possible

to treat it as a business vehicle taken out of service not to be used in his business again and write off the entire adjusted basis?

[Davc]

to treat it as a business vehicle taken out of service not to be used in his business again and write off the entire adjusted basis?

More a conversion to personal use with possible depreciation or 179 recapture followed by a gift.

[GIMoe]

Thanks

Thanks Gabriele, erchess, solomon, and Davc for your responses.

[jainen]

what actually happened

>>that is what actually happened<<

No, that is NOT what actually happened. That is the spin he is putting on the story after the fact. What actually happened is that he allowed his relative to take the truck, and even agreed to gift him legal title.

His reasons for doing so might have been here or there, but that is what actually happened.
*****************

P.S. The people who say he should get a divorce have a very jaded view of the great institution of marriage. You don't bust up a family over some piece of junk.

[GIMoe]

What actually happened

No, that is NOT what actually happened. That is the spin he is putting on the story after the fact. What actually happened is that he allowed his relative to take the truck, and even agreed to gift him legal title.

Maybe a better way to word my statement would have been:

...that is what I was told had actually happened.

However, he adamantly claims that he had no prior knowledge that his 'relative' was going to skip town with his truck and I, to date, have no real reason to not believe him. None-the-less, for the sake of argument, let us assume that he had prior knowledge and 'allowed' his relative to take the truck. Would it not still be legal, and in my clients best interest to issue said relative a 1099-Misc for the value of the truck? Or, does he have to just show disposition on 4797 with zero gain and zero loss and just 'eat' the value as a gift?

[jainen]

the dirty rat

>>issue said relative a 1099-Misc for the value of the truck<<

He wouldn't be the first employer to issue a 1099 for other income. IRS wants payroll taxes so it's supposed to be on the W-2. Either way should be fine. The employer can deduct adjusted basis on the 4797, and the dirty rat gets taxed on FMV.

[GIMoe]

He wouldn't be the first employer to issue a 1099 for other income. IRS wants payroll taxes so it's supposed to be on the W-2. Either way should be fine. The employer can deduct adjusted basis on the 4797, and the dirty rat gets taxed on FMV.

Thanks Jainen

[dsi]

Background:
In fact, at some point this year (2007) his wife is going to transfer the title to her brother's name. Purchase price of truck is $8000.

Are you saying your client purchased the truck for $8000, OR_are you saying the brother is paying $8000 for the truck?

[GIMoe]

Purchase price

Are you saying your client purchased the truck for $8000, OR_are you saying the brother is paying $8000 for the truck?

Purchase price was $8000.00 in July of 2006. In Sep of 2006 Brother-in-law took truck.