I gather that besides the LLC signing the lease, you and your spouse personally guaranteed it
here's some support
IRS revenue ruling 67-12
Advice has been requested whether ordinary and necessary business expenses, incurred in prior
years and paid in a year subsequent to the termination of the business by an individual taxpayer,
using the cash receipts and disbursements method of accounting, may be deducted under section
162 of the Internal Revenue Code of 1954.
The taxpayer operated a business as a sole proprietor. He had incurred debts for ordinary and
necessary business expenses which he was unable to pay because of financial problems, and had
entered into an agreement with his creditors under which he would pay his debts when he was
able to obtain funds. He then discontinued his business.
In a year subsequent to the termination of his business, the taxpayer paid the debts he had
incurred while carrying on the business.
Section 162 of the Code provides, in part, for the deduction of all the ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade or business.
Section 461(a) of the Code sets forth the general rule that the amount of any deduction or credit
allowable shall be taken for the taxable year which is the proper taxable year under the method
of accounting used in computing taxable income.
Section 1.461-1(a)(1) of the Income Tax Regulations provides that under the cash receipts and
disbursements method of accounting, amounts representing allowable deductions shall, as a
general rule, be taken into account for the taxable year in which paid.
In the instant case, expenses represented by the debts would have been deductible under section
162 of the Code had they been paid by the taxpayer while he was still carrying on the business.
The fact that the business has been discontinued does not prevent the deduction of expenses
otherwise allowable to an individual taxpayer using the cash receipts and disbursements method
of accounting. See Waters F. Burrows v. Commissioner,38 B.T.A. 236 (1938), acquiescence,
C.B. 1938-2, 5. Also, compare I.T. 4071, C.B. 1952-1, 148.
Accordingly, the ordinary and necessary expenses, incurred in a trade or business in prior years
and paid in the current taxable year, by an individual taxpayer, using the cash receipts and
disbursements method of accounting, are deductible under section 162 of the Code, even though
the business has been discontinued.
more support
Waters F. Burrows v. Commissioner, 38 B.T.A. 236 (1938), acquiescence, C.B. 1938-2, 5. Also, compare I.T. 4071, C.B. 1952-1, 148.
Reed v. Commissioner, T.C. Memo 1986-212
Dodd. V. U.S., 62-1 USTC 9216
the unanswered issues I see for which professional advice should be obtained .
did the other two also sign personally on the lease? only if so, could the IRS could bar a deduction until you estableish that they are unable, not unwilling, to reimburse you for their share.
how should this be reported - even though the business was terminated, should a 1065 be filed and if so how should these expenses be allocated or do you merely file a schedule C and take the deduction for all thses expenses on that form?
