DuvallWheeler, LLP

 

2017 – 09/14

Taxpayers can sometimes deduct bona fide bad debts on their taxes for the year a debt becomes worthless. One taxpayer advanced more than $80 million to a biotech firm over several years, but failed to secure promissory notes, collect interest or seek repayment. Some debt was exchanged for equity in the firm. In 2009, he deducted $8.55 million as a partially worthless debt, but the IRS denied the claim. The U.S. Tax Court agreed, stating the amount was equity, not debt, and that, in 2009, hope of recovery on the debt still existed. (TC Memo 2017-174)