Bad Debt

[mlamx]

In 1999 I worked for a small software company in Massachusetts. The first six mounths I worked for a regular salary. The last six months I worked under an agreement with the owners(S-corporation) which would pay my accumulated salary and expenses deferred over the next 2 years beginning on January 1st 2000. In exchange for the deferred payment I received a %5 equity interest in the company which would be paid if the company was sold. I quit the company in February 2000. Only one small payment was made on the note. Since then the company has dissolved although to my knowledge has never declared bankruptcy. Can I deduct the balance of the note as a bad debt or a capital loss. Do I have to amend my 1999 tax form at all or can it be deducted in 2000 since the first payment was due in 2000. What legal standing do I have with respect to remaining company assets? Should I sue for them. I really don't want to do that since the company has little in assets and it may cost more than I might receive from a settlement. Can I sue the owners personally? Being an S-corp at the time the note was signed, does this leave their personal assets open for attachment?

Thanks for your advice.

Mark

 

[ALawyer]

WHOA! If you reported income on the debt they gave you, or they reported that they paid you income on a W-2 or 1099, when the debt became worthless you have a bad debt deduction. If they did not pay you anything, and you reported nothing, there is no bad debt deduction.

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[mlamx]

<BLOCKQUOTE><font size="1" face="Verdana, Arial">quote:</font><HR>Originally posted by ALawyer:
WHOA! If you reported income on the debt they gave you, or they reported that they paid you income on a W-2 or 1099, when the debt became worthless you have a bad debt deduction. If they did not pay you anything, and you reported nothing, there is no bad debt deduction.

<HR></BLOCKQUOTE>
They paid me for the first six months so I got a W-2 for that income. I paid about $10,000 in actual expense money and about $30,000 in gross deferred salary. The total of the note was equal to the $40,000. They paid only a small amount toward the note for the final six months of the year. Are you saying that the value of the unreimbursed labor is not deductble? Could you clarify your response?