Planning to obtain ordinary loss treatment for worthless debts owed by partnerships to noncorporate partners

Section 166 allows taxpayers a deduction for debts that become worthless during the tax year. For noncorporate taxpayers, however, this allowance is qualified. A case study is presented involving tax planning to obtain ordinary loss treatment for worthless debts owed by a partnership to a noncorpora...

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Bibliographic Details
Published in:The Tax Adviser 1997-10, Vol.28 (10), p.665
Main Author: Ellentuck, Albert B
Format: Magazinearticle
Language:English
Subjects:
36 TC 1097
Agreements
Bad debts
C corporations
Capital assets
Capital losses
Corporations
Debt
Finance
Internal Revenue Code
Laws, regulations and rules
Limited partnerships
Loans
Loss deductions
Partnership
Planning
Section 166
State court decisions
Stockholders
Tax accounting
Tax court decisions
Tax courts
Tax deductions
Tax planning
Taxation
Taxpayers
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Summary:Section 166 allows taxpayers a deduction for debts that become worthless during the tax year. For noncorporate taxpayers, however, this allowance is qualified. A case study is presented involving tax planning to obtain ordinary loss treatment for worthless debts owed by a partnership to a noncorporate partner. At issue is how to structure a loan to the partnership. The character of a bad debt loss attributable to a partner's loan to a partnership appears to be governed by the Tax Court decision in Butler (1962).
ISSN:0039-9957