If you paid them, then yes. For example, if you gave them $1,000 for something and they kept the money, then you could write that off as a payment to an independent contractor, which is a 1099 item. If you made loans, that is different. The unpaid debts are bad debts and deductible as such, not 1099 payments. For it to be a debt, you need a promissory note or some other agreement showing it is a debt. If you want to characterize these payments as independent contractor payments, you can write them off as such, but if it is a loan, that is not correct. If you forgive the loan, then get a different 1099, that for discharge of debt income.
I believe the 1099 for Cancellation of Indebtedness Income is a 1099-C. This will enable you to write off the bad debt. So he gets 2 1099's, one for independent contractor payments and the other for the bad debt. This could effect your ability to successfully sue for the amounts due. It does not mean you cannot sue, but your tax treatment of the items could become an issue if you do. Up to you, what is worth more, the deduction or a potential recovery in a lawsuit? Does the debtor/IC have assets to recover from? If yes, then you might want to go after it that way. You asked about tax treatment and 1099's, so I provided you with that, but the bigger picture (suing for recovery) is another matter.
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Ok so what you're saying is giving someone total indemnification does not take away my position for issuing a 1099 for the unaccounted money right? I really learned an extremely valuable lesson. I invested $250,000 in a company for 18% with a "friend" she used the money as her personal purse and then started a business in St. Lucia. She agreed to give me the company but she wants total indemnification. Would I be responsible for the taxes of previous years too by taking the company?
On another note if I did not take company is she liable criminally for anything? I was told this is a civil matter more than criminal. I know I was ignorant but I still feel taken advantage of and feel like there should be some recourse without paying another $50,000 in legal fees.
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