(All debts owed to corporations are treated as business debts.)

Items to gather:

1. The original promissory note
2. The canceled check proving you expended the money from personal funds
3. UCC filings, Security Interests filed, etc.
4. If you received some of the money returned, to you, then obtain copies of deposit slips showing the amount of the money and the time the money was received, along with paperwork to establish whether the money received was for interest, principal, late fees, etc. (Note: one should always make a separate deposit slip for any money received that was/is not to be considered income.)
5. Prove the entity cannot repay the money – for example a bankruptcy filing
6. Prove you asked for the money to be repaid.

A nonbusiness bad debt is deductible for the year it becomes wholly worthless, and is treated a short-term capital loss (special limitations apply).

Individuals: the deduction is claimed as a short-term capital loss on Schedule D.

Partnerships: the deduction is claimed on Schedule D.

Sample Statement:

Taxpayer Name(s):___________________________________

Tax Form:___________________

Tax Schedule:________________

Taxpayer identification number: _________________________

(1) Description of the debt: ____________________________
__________________________________________________
__________________________________________________
__________________________________________________

Amount: ____________

Interest Rate: ________

Maturity:

Original date: ________

Maturity Date: ________

Collateral: ________________________________________
________________________________________________
________________________________________________

Payment amount: ___________________________________

Payment Frequency: _________________________________

(2) Name of the debtor: _______________________________

_________________________________________________

Business or family relationship of the debtor to the taxpayer:

_________________________________________________
_________________________________________________

(3) The efforts made to collect the debt: ___________________

_________________________________________________
_________________________________________________
_________________________________________________

(4) the reasons for determining that the debt became worthless:

________________________________________________
________________________________________________
________________________________________________
________________________________________________

Amount Loaned: _________________

Date of Loan: ____________________