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With regard to delinquent loans with respect to which the
automobiles securing the loans were not located by petitioners’
repossession agent, the entire outstanding balance of the loans
would be charged off on petitioners’ corporate Federal income tax
returns as business bad debt deductions.1
Whether a bad debt tax deduction relating to a particular
loan and repossession was claimed on petitioners’ corporate
Federal income tax return for the current tax year or for the
prior tax year depended on when the loan originated and whether
the repossession of the automobile occurred prior to the filing
of the tax return for the prior tax year. With respect to a
delinquent loan that had been made in the prior tax year and
where the repossession of the automobile occurred in the current
tax year but prior to the filing of the corporate Federal income
tax return for the prior tax year, the related bad debt deduction
would be claimed by petitioners on the tax return for the prior
tax year.
1 The record is not completely clear as to how the amount of a
particular loan chargeoff was calculated for purposes of
petitioners’ financial books and records. Some evidence
indicates that upon repossession or return of an automobile
securing a loan, the amount of the chargeoff was calculated in
the same manner as it was calculated for tax purposes (namely,
all but $100 of the outstanding balance due on the related loan
would be charged off). Other evidence indicates that for
financial book purposes upon repossession of an automobile
petitioners determined the wholesale book value of the automobile
and charged off only the difference between the loan balance and
the wholesale book value.
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Last modified: May 25, 2011