Default on a private loan receivable

Losses from a loan to a corporation are to be recognized for tax purposes if it is certain that the corporation will no longer make payments.

The German Federal Fiscal Court has once again confirmed that the final default of a loan receivable results in a loss to be recognized for tax purposes. However, in order for the loss to be recognized, it must be definitively established that the debtor will no longer make any payments. In the event of the dissolution of a corporation as the debtor of the claim, this requirement is generally not met until the liquidation has been completed, unless special circumstances of the individual case indicate otherwise by way of exception. In the case in question, the wife of the sole shareholder had granted the loan.