Beware of IRS scrutiny when deducting a bad debt from a related party.
Company advanced multiple loans to founderís son. Payments were evidenced by promissory notes with fixed maturity dates, but many did not have original signature. The company had no way to enforce repayment, and it continued to advance funds even after the son failed to repay amounts due on earlier advances. The Tax Court said there wasnít bona fide debt and disallowed the companyís bad debt deduction.
(VHC, TC memo, 2018-220).
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