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    4 Replies Latest reply on Jan 12, 2014 9:05 AM by Moderator Melinda

    cash basis expenses/bankruptcy

    bob s Wayfarer

      A cash basis LLC that charges most expenses on

      personal credit cards.  The individual filed BK.

      For any expenses that are paid through the bankruptcy over

      a period of 5 years - can they be written off in the current year?

      or over the 5 years as they are paid through BK payments?

      expenses that are written off through BK - can they

      ever be written off?

      Seems to be a whole lot of gray areas here... any ideas?

      Any IRS publications that deal with this?  (I havent seen any thus far)

      Thanks so much in advance for any assistance.

        • Re: cash basis expenses/bankruptcy
          Tran Nguyen Tracker



          Welcome to the forum!


          I will do my best to answer this -- but keep in mind; I'm an Operational-Cost Accountant. Not an expert on bankruptcy laws.


          To begin with, I recommend reviewing the IRS Publication 908 -- Insolvency


          Publication 908 (10/2012), Bankruptcy Tax Guide


          From my understanding of the bankruptcy law regarding LLC or any entity; the "matching principle" still applies. By that, I mean corresponding payments must have corresponding expenses tied to them. Because the payments must match corresponding expenses (and my interpretation of the "gray area" -- which are ample) I would say that it would have to be done over the 5 year period.


          Expenses incurred during the bankruptcy cannot be "written off". To be clear, the term "written-off" is only used for receivables and income. Expenses incurred during the bankruptcy is explained as such


               "one of the provision of a bankruptcy is that the debtor may not acquire any other delinquent balances while under the court's debt that a person acquire while already in bankruptcy is not protected from collect by the bankruptcy court because it was not disclosed in the initial filing"


          So your expenses must be paid.


          I hope this helps.


          Tran Nguyen


          • Re: cash basis expenses/bankruptcy
            bob s Wayfarer

            Thanks Tran.   I had looked through that IRS publication, and several others, without success in finding an answer.  I have also gotten an answer that charging the material on a credit card, it is considered paid and you have created a new relationship with the CC company, which is then part of the bankruptcy... not the material itself.  Melinda - It seems that this should all be applicable to every state as the IRS code and the bankruptcy laws are both federal.


            thanks to you both