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You are here: Experts > Business > Corporate Law > Tax Law (Questions About Taxes) > Income Loss
Expert: John Kirk, CPA
Date: 9/18/2008
Subject: Income Loss
Question
I was partner with a friend of mine to operate a business.
The business's last year ordinary income was about
$50,000 and I reported half of this income in my personal
tax return but never receive my distribution share of
$25,000. I discovered early last month that my partner had
stolen all of the partnership assets. Can I claim a loss on
my current year tax return for the share of $25,000.
Thanks for your help!
Hiep
Answer
The termination of the partnership gives rise to a capital loss to the extent that your capital account exceeds the amount of consideration received upon liquidation of the assets and liabilities. This may exceed the $25,000 loss. Since the loss is a capital loss, you are limited to deducting only $3,000 per year in net capital losses.
The monies taken by the partner is considered a distribution to him and he is taxed on the excess over his capital account. Such actions by the partner generally terminates the partnership, so you need to look at the liquidation of the assets and liabilities to determine the gain or loss recognized.
You also have the right to sue the partner for return of those assets.
John Kirk, CPA
www.johnkirkcpa.com
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