Any accountants out there?

shawndyer

I recently settled a promissory note I had for a pizza joint with the former owner. Is the difference considered forgiven debt?

CServant

shawndyer wrote:

I recently settled a promissory note I had for a pizza joint with the former owner. Is the difference considered forgiven debt?

It's a settlement, so in my eyes, the remaining balance is forgiven. We write those balances off as "settlement in full."

81

sounds like he payed less than full value to pay off the loan.

i suggest looking into the tax ramifications. i believe the IRS treats this as income.

mrvedderson

payment of a promissory note will result in revenue only if there was an interest charged. a promissory note is the same as a loan. The amount of the loan also depends on how you book it.(Like it may be so small it doesn't even need to be noted) If you had already written this amount off as a bad debt in a previous year, then you need to put this down as recovery of a written off debt. If the debt is still on your books, then whatever you received over the original amount would be considered revenue, and any loss would be a loss.

81

So, the OP is the lender. I read it as if he was the borrower. IMO, it will end up in bad debt, reducing income and taxes.

shawndyer

Sorry I was the borrower. I owed 30,000 and settled for 6500. I was told the other day by my accountant that the 23,500 is probably going to be considered income. I was not very happy. Just wondering if there was any way to put it into a different category on the tax return. There was interest charged on the original note but no one has a copy of this note except for me, which is why I thought I got a good deal. Thanks.

81

hmm, i wonder, can you reduce your asset value vs taking the gain to the P&L.

i'd ask your accountant about that.

JOEJOEJOE

I would focus more on the tax ramifications, as opposed to your "books".

You tax preparer should be able to advise you based on the facts.