Theft Loss

[Bird Legs]

Client, in Sept. 2002, purchased 2 trailers for $5000., along with other equipment, with
the intent of going into the house moving business.

2 days after buying the 2 trailers, and before starting the business, the 2 trailers were
stolen. No insurance.

Does this theft loss constitute a business casualty loss, reported on Form 4797,
or a personal casualty loss, reported on Sched. A?

Because of the theft of the2 trailers, client never activated the business.
Thanks

[RLymanC]

Casualty Loss

The key here may be in the "purpose for which you held the property." I can find nothing that states specifically that you must be in business. Is there any documrntation that the property was held for business purposes?

I would go for form 4684 page 2 and 4797. This is my best guess.....any other thoughts????

[Bird Legs]

Casualty Loss-RLymanC

The intent of buying the trailers was to go in to business moving houses.
When trailers were stolen, however, the intent was esentially stolen also.
My thinking is that the trailers were purchased for a specific business purpose that
this would be a business loss. Even though the business was not started.
RLymanC, appreciate your response.

[Black Bart]

Biz or not?

I can't find anything that addresses this question either, Bird. All the literature seems to focus on the "tax treatment" of the stuff, but I don't see anything anywhere about how to determine if just the act of buying the trailers "put them in business." It seems like kind of a tossup as to whether or not an IRS agent would -- under these unique circumstances -- reverse the biz loss and make it a personal one.

I guess I'd probably say that he/she was in business and write it off as a biz loss. But I think I'd also tell the taxpayer that it was a debatable issue and that, if audited, it might be switched to a personal loss and they'd owe more tax, penalty, and interest. Also it wouldn't be a bad idea to type a note of understanding to that effect and have them sign it.

On that rent deal a few posts back; I agree with Mark.

[Bird Legs]

Bart, your

response in greatly welcome. Have a nice, warm, sunny, Sunday.

[Black Bart]

Thanks. Same to you, but

I bet we don't get one. It's freezing here.

By the way, I called the Quickfinder office in Fort Worth Thursday and Friday about some CPE hours from last year's book and, on both days, they said they were closed because of "severe weather conditions."

They were open today. What's happening down there? Snow?

[Black Bart]

p.s.

Where's your "...tweet?" I kinda miss it.

[Gretel]

First Inclination

My first thought was that the fact client bought the trailers was his first business move after some research or whatever he did. And maybe, after he is over this shock and recovers financially he will start again?

I had a nice, warm Sunday. Kind of deserved it after 10 days of bitterly cold winter already.

[Bird Legs]

Cold, Bart

Yeh, weather got cold allright. Here in central Texas it rained most of the day Wednesday,
then Wednesday night it got down to about 20 degrees. Ice all over the place. Cars
skidding around and smashing into one another. I live about 7 miles from my office.
I did come in to work Thursday. Left house about 12:15 PM. Saw about 7 cars that had
skidded off on to the side of the road.
Friday was not quite as bad.
Brad, this is for you, tweet...

[Black Bart]

Big Sky Gabriele

Are you on the plains or in the mountains out there?

How cold does it get in Montana?

[Armando Beaujolais]

I agree that it's a business loss.

Look at the rule about a failed attempt to go into business. For an individual, general investigative costs to decide which business to go into are not deductible at all - they're considered personal expenses. However, once the decision has been made to start up a specific business, if that attempt fails, those costs are deductible as capital losses. The costs are deductible because they're considered business expenses, not personal expenses. The loss is deductible whether or not the business has begun.

I think the rule of the dividing line between business vs. personal will apply to this theft loss as well.

Costs of a failed business attempt are deductible because the costs become business-related when the decision has been made. Decision made = Business classification.

Does that make any sense?

[Lion]

Theft

The trailers would've been put into BUSINESS USE when they were available for use. So, unless something else was holding up their business purpose -- licensing or whatever -- they would've been business property when stolen even if they hadn't actually been used yet for business. If they hadn't been stolen, would you have depreciated them on that date as put into service? Again, not yet used but available for use. If so, then I'd say you have a business loss. I agree that you explain the gray area to your client as well as the difference in tax and let him choose.

[Armando Beaujolais]

The trailers would've been put into BUSINESS USE when they were available for use. So, unless something else was holding up their business purpose -- licensing or whatever -- they would've been business property when stolen even if they hadn't actually been used yet for business. If they hadn't been stolen, would you have depreciated them on that date as put into service? Again, not yet used but available for use. If so, then I'd say you have a business loss. I agree that you explain the gray area to your client as well as the difference in tax and let him choose.

I agree these are business expenses. However, I believe you're raising the bar too high to say the assets must have qualified for depreciation. It doesn't matter if the items were "ready and available" for business use. It doesn't matter if they were waiting for licensing, waiting for wheels, waiting for painting, or whatever. The costs were business costs, not personal (unless the person had four snowmobiles and used those trailers for carting the sleds and a couple of cases of beer up north - that would be a different story).

I guess the thing I disagree with most is that this is a "gray area." If you have a failed buisness attempt, you write the losses off because they're business losses. If it's a business for purposes of writing off losses on a failed attempt, it's a business for purposes of writing off theft losses. There's no requirement that the assets had to be ready and available. That's a depreciation rule.

[Bird Legs]

Thanks to everyone.

I did treat it as a business casualty loss. Sometimes I just wonder if this was the right
thing to do.
All of you are great.
Black Bart, I do enjoy your conversations and stories.
tweet...

[Lion]

Yes, Armando

Yes, Armando. I meant the same thing as you; you just say it better. I was just trying to make the point that the trailers were bought for a business and if all had gone as planned the trailers would qualify for all business purposes, such as depreciation. If they'd been stolen after being used in the business for a year, no one would question reporting as a business theft. The fact that they never got to be used in the business had to do with the outside event -- theft -- and not anything the owner did like using them for personal purposes or refusing delivery or.... I too agree with his reporting of this event as a business theft and not personal.