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
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 supervision...new 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, thank you for your very detailed answer. My question to you is does this matter change depending on the state you are located in, or is this the true for every state?
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
Thanks for your answer, bob s. Sounds like to me that you definitely should speak to your accountant on this. You don't need any surprises on a topic like this. Good luck and let us know how you were able to finally resolve this issue.
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.