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PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4624
Experience:  35 years tax experience, including four years at a Big 4 firm.
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We have a company 1 that got a loan at the bank, but company

Customer Question

We have a company 1 that got a loan at the bank, but company 1 used collateral from that belonged to Company 2. Company 1 cannot pay the loan to the bank so the bank is going to foreclose on Company 2's collateral. Does company 2 have to show that amount of the loan, in this case 2m as income. And can Company 2 show a deduction on their return because company 1 failed to repay company 2 for using the collateral.
Submitted: 2 years ago.
Category: Tax
Expert:  PDtax replied 2 years ago.
Hi from Just Answer. I'mCustomer and can assist. Company 1 committed fraud by using collateral of company 2 to secure a loan. I suggest different support for the transaction. You might consider asking that company 2 act to absorb the debt, and execute an agreement for company 1 to repay company 2 for the debt absorption. If company 1 ultimately fails, then there would be support for company 2 to claim the tax loss. This assumes that company 1 and company 2 are commonly owned, or otherwise related entities with common interests. I would use the services of an attorney to craft the agreements to maximize the value to company 2. Thanks for asking at Just Answer. Positive feedback is appreciated. I'mCustomer