My wife and I filed a non-consumer CH 7 bankruptcy in early 2011. Thankfully, everything went smoothly with the entire procedure and the discharge came a year ago in May. My brother had made a series of clearly noted small business 'loans' to us over a four year period from 2006 - 2009. At the time of our filing, and even since, we have not been able to repay any of the principal owed which had accumulated over time to about $34k. We did name him, of course, as a primary 'creditor' on our petition. Outside of this one close family member - other creditors were third party lenders / banks.
Flash forward to now - my brother is in the process of amending his 2011 tax return after filing a 6 month extension. His intent per the advice given earlier in the year by his accountant was to take a tax write-off / loss against the full principal balance of the loan. This accountant (at that time) messed up in an area or two and his NEW accountant has now warned him that if he were to file the 34K loss - and the IRS were to audit or flag it down due to the loan being made to a close family member - the IRS may subsequently come after us since we did not claim that principal amount loaned to us over time as 'income' on our tax returns in the years it was loaned to us. There was no corporation or LLC involved - any 'income' or in our case 'losses' from the capital flowed through to me. The losses greatly outweighed the earnings over that 4 year period and we still have a considerable carry-forward loss on our taxes. This accountant referred to regulation or section 1.267b and warned of the risk of us potentially paying not only tax $ owed - but penalties and interest to boot. Is there anyone that may be able to speak to this situation?? Thank you in advance for your feedback!
Flash forward to now - my brother is in the process of amending his 2011 tax return after filing a 6 month extension. His intent per the advice given earlier in the year by his accountant was to take a tax write-off / loss against the full principal balance of the loan. This accountant (at that time) messed up in an area or two and his NEW accountant has now warned him that if he were to file the 34K loss - and the IRS were to audit or flag it down due to the loan being made to a close family member - the IRS may subsequently come after us since we did not claim that principal amount loaned to us over time as 'income' on our tax returns in the years it was loaned to us. There was no corporation or LLC involved - any 'income' or in our case 'losses' from the capital flowed through to me. The losses greatly outweighed the earnings over that 4 year period and we still have a considerable carry-forward loss on our taxes. This accountant referred to regulation or section 1.267b and warned of the risk of us potentially paying not only tax $ owed - but penalties and interest to boot. Is there anyone that may be able to speak to this situation?? Thank you in advance for your feedback!
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