Checks uncashed

[BLACK BART]

Farmer client rents land from three related landlords for a flat cash amount - $2,500 to each.  He wrote the checks last year, but - odd thing - months later, none of the checks have been cashed. He thinks they may be selling their land to someone else, but none of them will discuss it with him.  My guy really doesn't care why they're holding them 'cause he has other options, but he's a cash basis taxpayer and he wrote the checks in 2016.  They COULD have been cashed at any time before year's end, but were NOT.  Of course, he wasn't actually out the money in 2016, but they can still be cashed at any time.  Question: Is the expense deductible in 2016?  Or do we have to wait until they get around to cashing them?

P.S. I've got an idea what everybody's going to say, but as a client who needed an expense but was not entitled to it once pleaded with me: "But, I NEED that deduction!"

 

[rfassett]

Unless he put restrictions on the cashing of the checks, it is not his concern whether they were cashed.  If the recipient had the right to cash the check, then your client is entitled to the deduction.  Whether there are discussions about selling the property is not pertinent to whether your client is permitted a deduction for the land rent.

[Terry D EA]

I agree. Whether the check was cashed or not is does not determine the eligibility of the deduction. The expenses is deducted in the year it was paid.

[BHoffman]

Although I agree he is entitled to the deduction, what if they never cash the checks?  After the checks are stale, does the client reverse the transaction at a later date?  Having $7500 laying around in the checking account is going to make things messy down the road.  Can the client contact the landowners and ask whether they received the checks and do they expect to cash them? 

[rfassett]

36 minutes ago, BHoffman said:

Although I agree he is entitled to the deduction, what if they never cash the checks?  After the checks are stale, does the client reverse the transaction at a later date?  Having $7500 laying around in the checking account is going to make things messy down the road.  Can the client contact the landowners and ask whether they received the checks and do they expect to cash them? 

Those are very good questions.  We all need to be aware of the escheatment rules for our particular State.  And they are different from state to state.

[Gail in Virginia]

Did the client issue 1099MISC for 2016 to the landowners for the rent that he paid them?  It seems to me that would have encouraged them to either return the checks or cash them. 

[Lee B]

4 hours ago, Gail in Virginia said:

Did the client issue 1099MISC for 2016 to the landowners for the rent that he paid them?  It seems to me that would have encouraged them to either return the checks or cash them. 

Exactly the question I intended to ask !

[BLACK BART]

No restrictions on cashing of the checks.

Client said he saw two of the them last year and gave them their checks - I don't know about the third guy.

One said at the time that they were having legal problems with their grandchildren and a trust. They don't come around or return his calls now.

He never issued any 1099s. Don't know if he will want to now or not - will ask.  

I think I'll deduct the two who received their checks and ask client what happened with the third guy.

Checked Arkansas escheatment - five years on most property, but no rules on checks and drafts. Too complicated to worry about that anyway.

Someday; somebody's going to bring in a straightforward tax return with no hitches and I'll pass out.

[FDNY]

3 hours ago, BLACK BART said:

 

Someday; somebody's going to bring in a straightforward tax return with no hitches and I'll pass out.

I notice every year that before 3/15 the conscientious people get their work in with very little additional problems, after 3/15 everyone has an issue and it always takes longer to get the return done.  The worst of them drag it out without any regard for your time, as if their return is your only concern.  Hang in there Black Bart, don't lose any sleep, although I see you are up early this morning.   I agree with how you are handling this situation.

[Pacun]

Take the deduction and rest. Keep copies of the contract and the checks issued.

If they are not answering his phone calls, chances are that you will not be able to get their SS#. Maybe they are in jail already... sorry, I couldn't resist.

[RitaB]

10 hours ago, BLACK BART said:

Someday; somebody's going to bring in a straightforward tax return with no hitches and I'll pass out.

 

6 hours ago, FDNY said:

I notice every year that before 3/15 the conscientious people get their work in with very little additional problems, after 3/15 everyone has an issue and it always takes longer to get the return done.  The worst of them drag it out without any regard for your time, as if their return is your only concern.

Dear Client,

      Thanks for bringing in three copies of your 1099-Int for your checking account and nothing regarding the sale of $25,000 in mutual funds.