unless yiu have a written loan agreement with the terms of the loan, it will be hard to establish that this was a true loan.
As stated above, it is not necessary to actually sue to collect the debt, but you must show that you could not collect even if you did sue, such as having proof that the debtor has files for bankruptcy, is insolvent, is relocatable, or other valid reason that you can establish to the IRS's satisfaction - that is often not easy to do.
Also see:
Genuine debt required.
A debt must be
genuine for you to deduct a loss. A debt is genuine
if it arises from a debtor-creditor relationship
based on a valid and enforceable obligation
to repay a fixed or determinable sum of
money.
Loan or gift. For a bad debt, you must
show there was an intention at the time of the
transaction to make a loan and not a gift. If you
lend money to a relative or friend with the understanding
that it may not be repaid, it is considered
a gift and not a loan. You cannot take a
bad debt deduction for a gift. There cannot be a
bad debt unless there is a true creditor-debtor
relationship between you and the person or organization
that owes you the money.
.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
