Believe it or not.....

[Denne]

I had a couple come in with a nice spreadsheet that included all the office supplies, unpaid wages and even a loan that they gave to her past employer. She was just trying to save her job and the prior employer has not paid her a dime back in two year. The emplolyer agreed to pay interest on the $15,000 loan and hasn't made a payment yet. she finally left there when she was not getting her paychecks....totaling $12,320.00. I would say they have given the past employer plenty of time to pay the wages and pay them back. What is the correct way to write off this loss? I need suggestions on this one....never heard of such a thing!

[jklcpa]

Is any of this formalized with a promissory note, or is the only documentation the spreadsheet and verbal agreement between the parties? Have they filed a claim in court to recoup? Your first problem is that you need to establish that the loan and the back pay are now worthless.

If you have a Master Tax Guide, you can start by reading about business bad debts at para 1145 and then also within that section under the heading "Employee Loans." That talks about employee rendering of services for pay is considered for trade or business purposes in applying the bad debt provisions. It goes on to discuss employee loans.

Also read the section Dominant Motivation Test.

[JohnH]

She may have a bad debt deduction for any money advanced as a loan and/or out of pocket expenses, provided she can document the expenditures and show that there was no chance of recovery after having made reasonable efforts to collect.

The foregone salary is a wash - no income reported and therefore no deduction allowed.

[Denne]

Thanks for the replies. I realized after I sent the message that I hadn't mentioned there was a Note drawn up with the stiuplation of interest to be charged. That makes sense about the salary she never got too. She did keep track of each receipt and her mileage when she was doing things for her job, but I have to see if they got anything in writing about collecting that back from the employer.

Thanks again!

[grandmabee]

Thanks for the replies. I realized after I sent the message that I hadn't mentioned there was a Note drawn up with the stiuplation of interest to be charged. That makes sense about the salary she never got too. She did keep track of each receipt and her mileage when she was doing things for her job, but I have to see if they got anything in writing about collecting that back from the employer.

Thanks again!

What about the dept of labor? Oregon is quick to get the employer to pay any unpaid wages.