We are an LLC corp elected as a C corp. We lent a principal of the company about 20K last year. The party has been removed as a principle. Is there a way to retire the loan off our books even though our business is not in the lending industry and does not exactly fit under 6050P to do the 1099-C? We sued them and got nowhere. Just a waste of our money. We decided that if a tax liability could go to them for the full amount of the loan, then that would be justice enough if we can write the loan off our books. Is there anything we can do because they are just getting away with basically stealing right now with no payment back to us and unwillingness to make any effort whatsoever to acknowledge the loan.
Any help would be appreciated.
Thank you
You should seek guidance from local legal counsel (you should have legal counsel if you do not already).
Regardless, you should have had some sort of agreement for repayment and, if so, the loan could be written off as a bad debt. You need to ensure it does not wind up being a constructive dividend so legal counsel should be consulted.
Already have legal counsel. If you saw, we already sued them and it went nowhere. We want to try to get this where they have a tax liability if possible. Can this be done? If so, how?
@Lewisj8 wrote:
Already have legal counsel. If you saw, we already sued them and it went nowhere.
The lawsuit went nowhere? Were you unable to get a judgment against the debtor?
seek legal counsel. the IRS says that the cancellation of a stockholder's debt should be reported on 1099-DIV (IRS PUB 542). this would result in the stockholder having taxable income but your LLC/corporation would get no deduction. since you are an LLC taxed as a C-Corp, I can't say whether or not the "principal" would be regarded as a shareholder under state law. a 1099-C seems inappropriate, you're not a financial institution, and actually might be subject to a fine for issuing it. an issue that could arise with the IRS is that they could deem it compensation. then they hit the corporation for various penalties for failure to report payroll and withhold taxes. Unlikely unless the principal took an active part in the operations.