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PDtax
PDtax, CPA, MBA
Category: Finance
Satisfied Customers: 4093
Experience:  Tax professional and business consultant for 35 years.
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Two companies that I own 100% of have my loans to two other

Customer Question

Two companies that I own 100% of have my loans to two other companies which are partnerships. In short, the partnership companies are break-even or less, and the operating shortfall is covered by the companies I own, mostly because the partners arent in a position to do so (i.e. have no additional money). The total amount loaned (papered up by a promissory note etc) totals $224, 143 over three years.
The companies which have received the loan are not in a position to make installment or other payment. While the loans appear on the statement of cash flows and are listed on the balance sheet, the problem that arises is I still carry the tax burden of that income, which decreases my cash flow substantially (i.e., a profitable business posts net income, some or at times all of which goes to the less profitable business, yet taxes and other obligations persist).
My question is: can I discharge the loaned amount as bad debt and reduce the net income of the companies I own without being faced with having to pay taxes on the discharged amount in the companies whose debt is forgiven? If so, must the company discharging a debt file a 1099-C to be delivered to the company whose debt was discharged?
Are there alternatives to this approach that would accomplish the same goal (aside from the obvious, i.e. tell the partners they need to pay, close the businesses, etc etc)?
Submitted: 1 year ago.
Category: Finance
Expert:  PDtax replied 1 year ago.

Hi from just answer. I'm PDtax.

Expert:  PDtax replied 1 year ago.

Business bad debt deductions could be available for these loans. That gets you ordinary loss treatment for the loan write offs. The partnerships might have debt forgiveness income, which would be shared among the partners, offsetting prior year losses recognized at that level.

Expert:  PDtax replied 1 year ago.

There are specific requirements for the loans to qualify.

Expert:  PDtax replied 1 year ago.

I can assist in outlining the requirements, and in suggesting how to add additional support if it is lacking. That will take some time, which I can offer through our Offer of Additional Service.

Accept, and we can work together to best present your transactions for maximum tax benefit.