Discussion:Theft loss?
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Discussion Forum Index --> Tax Questions --> Theft loss?
| 22 April 2009 | |
| My client invested $20K as a limited partner in a partnership that was in the business of renting personal property. There are a total of about 50 limited partners and one general partner. The general partner cannot be located and it turns out that the bank took all the partnership's assets. There isn't any concrete proof, but nobody can find him. It seems as though he has taken off with everyone's money. For 2008 everyone is still waiting on their Schedule K-1's. So I have been waiting to finish this return until we find out more. The questions I have are 1) Can we claim a capital loss at this point? 2) Or should we wait to get more evidence and possibly claim a theft loss? 3) Would this theft loss be a personal loss rather than a business loss (since she was a passive investor in the partnership)? 4) Any other advice?
One thing I told her was that all of the limited partners needed to pool together and hire a private investigator to find the general partner. | |
| 22 April 2009 | |
| 1. no you can't take a loss until it has been determined to be a loss. Did the general partner take off with any money from the business, if so, this is an embezzelment and should be reported to the police.
2. yes you have to wait until all the facts are in and until you have documents to prove every reasonable effort has been made to regain the alleged loss. 3. possibly and answered in #1 Someone in authority for the business needs to determine why the bank froze the assets or took them. If a theft is involved then it is an embezzlement and, again, should be reported to the police by all of the limited partners that sustained the alleged loss. The police will investigate, hopefully make an arrest, then comes the court, then the loss is documented and after reasonable attempts have been made to recover the money it could be reported as a loss on the tax return in the year that all this is settled, not before. | |
| 22 April 2009 | |
| That makes sense. I will urge my client to start organizing the rest of the limited partners to gather more information about what happened.
Also, she has never seen a copy of the entire tax return. As a limited partner she can request a copy of this from the IRS correct? The tax preparer would not give her a copy of the 2007 partnership return. | |
| 22 April 2009 | |
| One other issue at hand is how I should handle her 2008 return since she most likely will not receive a Schedule K-1. The tax preparer who prepared the 2007 return did not and is not preparing the 2008 return. So I don't know if a 2008 partnership return will even be prepared. My client assumes the business is closed due to the fact the bank had to repossess the assets of the company. Given that it most likely is not operating anymore would the passive losses dissallowed from the previous years be allowed in 2008 since the business is over or do we need to wait for a Schedule K-1 showing "final" return. I don't think one will ever come. | |
| 22 April 2009 | |
| The IRS has a page for the Madoff investors, which has additional guidelines.
http://www.irs.gov/newsroom/article/0,,id=205505,00.html?portlet=7 | |
| 22 April 2009 | |
| Thanks for that information. Those guidelines are helpful if it is determined to be a theft. So I guess my client needs to get more information so we can determine if this is a theft loss by the general partner's embezzelment or just a capital loss from a failed business. | |
| 22 April 2009 | |
| Unfortunately, the GP may have not bothered cooking the books to make it look like a failed business. He may have run off with the books leaving every one on the hooks. Probably kidnapped by pirates off Lake Michigan. | |
| 22 April 2009 | |
| You don't have a theft loss yet. The limited partners should all put some money together for a private detective and hunt down the scoundrel. | |
| 4 November 2009 | |
| When does a theft become a theft? a shareholder took money (bank withdraws) that were unauthorized. After acknowledging this "error", the shareholder agreed to repay the corporation with plans to sell personal assets. The assets went up in smoke - literally- before they were sold & the company repaid. The shareholder was fired - the amount is still owed. Now the company is liquidating in bankruptcy. Is there a theft loss? What to so with the receivable from the scoundrel? | |
