5 ms·

When loans are forgiven by borrowers, the difference is treated as taxable income by the IRS (in the US). This would complicate your scenario somewhat, but the

When loans are forgiven by borrowers, the difference is treated as taxable income by the IRS (in the US). This would complicate your scenario somewhat, but the debtor would still be better off paying the taxes on the $19K than the entire original debt.

nostromo 13y ago
A gift from me to me! Where's the box for that on my 1040EZ? :) Alternatively, I could agree to pay myself back the full 20k at current interest rates so as to not create a tax singularity.
- deleted 13y ago
  [deleted]
ChuckMcM 13y ago
Kind of, and kind of not. A lot of people have gone from having some amount of debt owed to a company (bank or not) to having some amount of debt owed in tax (government). What that means is that they sat there with $20K in unpaid credit card bills, they got hassled by collection agencies, now the money they didn't have is unpaid taxes, which means the IRS will hunt them down, garnish their wages, take their property, and if necessary put them in jail. The correct thing to do from a disruptive/#occupy perspective is to buy the debt and then give the debtor new terms. They could make the terms require repayment, and forgiven on death. Then it is still a 'debt' (so so tax hit) but you don't have to pay it back (so no worry and debt collectors hounding you), If you die the IRS can try to get their pound of flesh out of your presumably destitute estate.
- genericresponse 13y ago
  The IRS cannot and will not put people in jail for unpaid taxes. Please do not spread false information.
  - __underscore__ 13y ago
    http://en.wikipedia.org/wiki/Al_Capone http://en.wikipedia.org/wiki/Al_Capone
    - tptacek 13y ago
      Capone was indicted for tax fraud, not for simply failing to pay his taxes.
  - ChuckMcM 13y ago
    Capone - evasion Wesley Snipes - failure to pay Nicolas Cage - threatened Willy Nelson - threatened ( I think he got probation ) Generally the pattern is very similar, taxes don't get paid, there is some reasoning on the part of the taxpayer why they didn't pay their tax, they are charged with evasion and work from there. This is because typically people who owe taxes they don't have the money to pay, don't file a tax return, which is the minimum definition of "evasion" according to my CPA friends. I am much less familiar with people who file a tax return, indicate they owe more than has been withheld, and then just let it go at that. I don't doubt they are out there but I just haven't seen the details of any cases like that (would be interested though if they are out there, searching the web hasn't turned up much, the IRS suggests you talk to them [1], they don't go into 'you talked to us and still won't pay') [1] http://www.irs.gov/uac/Failure-to-File-or-Pay-Penalties:-Eight-Facts http://www.irs.gov/uac/Failure-to-File-or-Pay-Penalties:-Eig...
    - tedunangst 13y ago
      All examples of people who claimed to owe less than they did. You need to provide an example of "I owe $10000; I don't have it" going to prison. Re: [1], at some point they start freezing assets and collecting the owed amount on their own, but you remain free to walk the streets.
      - ChuckMcM 13y ago
        I'm looking for that exemplar (someone who filed a tax return saying they owed more than they paid, and didn't pay anyway). The common cases seem to be, as you point out as well, either a tax return that justifies not paying the tax via some sort of reasoning, or simply not filing.
- rdtsc 13y ago
  Interesting. Thank you for explaining that. It also explains why getting a loan is not considered income, because it will be paid back. The interest you pay is income for the entity issuing the loan. If that entity now "forgives" the debt, it now becomes income for the borrower. They could presumably file a "loss" for the interest they will now not be getting. Did I get that right? This would also mean this kind of open a possibility of tax fraud. Companies issuing "loans" to employees, instead of paying salaries. I am sure IRS has something against that as well.
  - ChuckMcM 13y ago
    Pretty much. If you went to the bank and they gave you $10,000 and you never had to repay it, then it is income. I experienced it when I got some restricted stock (not an option but you can't sell it right way) when my company was acquired in the dot.com boom. I also got a "loan" to pay the taxes. The idea was that when the stock was available to sell, you could sell enough to pay tax on the loan forgiveness and keep the rest. (yes it was kind of convoluted but such were the times). Long story short, stock that was worth $35 in 1999 was worth $0.66 in 2001. Kinda bites big time. And yes you can take the loss, but only up to $3,000 and carry the rest forward to the next year. I believe that last year was the first year I didn't have any dot.com losses I could claim any more on my taxes :-).
- malandrew 13y ago
  A better option would be to buy the debt and do nothing with it ever. Just hold it until the person chooses to "redeem" it. i.e. pay the face value of the debt and can afford the taxes on it. Just send them a message like: "Hey we're a non-profit founded by Occupy Wallstreeters that bought your debt dirt cheap for X dollars directly from the last debt collection agency to hold your debt. You don't need to do anything now, we'll hold onto it forever if need be. However, if it turns out you need to "check back into the credit economy", we'll sell it to you at cost. Be aware, that doing so will create "income" for you in the eyes of the IRS, so only choose to buy this back if you can also afford to pay them as well in the same fiscal year. You can visit this link and put in your current income to calculate approximately how much you would owe the IRS if we were to opt for us to forgive this debt. Again, you don't have to do anything and we're never going to call you and pester at work like credit collections do."
- rtpg 13y ago
  You forgot the part where $20k in unpaid bills wouldn't transform into $20k in unpaid taxes. Scale is important
deleted 13y ago
[deleted]

nostromo 13y ago

A gift from me to me! Where's the box for that on my 1040EZ? :) Alternatively, I could agree to pay myself back the full 20k at current interest rates so as to not create a tax singularity.

deleted 13y ago
[deleted]

ChuckMcM 13y ago

Kind of, and kind of not. A lot of people have gone from having some amount of debt owed to a company (bank or not) to having some amount of debt owed in tax (government). What that means is that they sat there with $20K in unpaid credit card bills, they got hassled by collection agencies, now the money they didn't have is unpaid taxes, which means the IRS will hunt them down, garnish their wages, take their property, and if necessary put them in jail. The correct thing to do from a disruptive/#occupy perspective is to buy the debt and then give the debtor new terms. They could make the terms require repayment, and forgiven on death. Then it is still a 'debt' (so so tax hit) but you don't have to pay it back (so no worry and debt collectors hounding you), If you die the IRS can try to get their pound of flesh out of your presumably destitute estate.

genericresponse 13y ago
The IRS cannot and will not put people in jail for unpaid taxes. Please do not spread false information.
- __underscore__ 13y ago
  http://en.wikipedia.org/wiki/Al_Capone http://en.wikipedia.org/wiki/Al_Capone
  - tptacek 13y ago
    Capone was indicted for tax fraud, not for simply failing to pay his taxes.
- ChuckMcM 13y ago
  Capone - evasion Wesley Snipes - failure to pay Nicolas Cage - threatened Willy Nelson - threatened ( I think he got probation ) Generally the pattern is very similar, taxes don't get paid, there is some reasoning on the part of the taxpayer why they didn't pay their tax, they are charged with evasion and work from there. This is because typically people who owe taxes they don't have the money to pay, don't file a tax return, which is the minimum definition of "evasion" according to my CPA friends. I am much less familiar with people who file a tax return, indicate they owe more than has been withheld, and then just let it go at that. I don't doubt they are out there but I just haven't seen the details of any cases like that (would be interested though if they are out there, searching the web hasn't turned up much, the IRS suggests you talk to them [1], they don't go into 'you talked to us and still won't pay') [1] http://www.irs.gov/uac/Failure-to-File-or-Pay-Penalties:-Eight-Facts http://www.irs.gov/uac/Failure-to-File-or-Pay-Penalties:-Eig...
  - tedunangst 13y ago
    All examples of people who claimed to owe less than they did. You need to provide an example of "I owe $10000; I don't have it" going to prison. Re: [1], at some point they start freezing assets and collecting the owed amount on their own, but you remain free to walk the streets.
    - ChuckMcM 13y ago
      I'm looking for that exemplar (someone who filed a tax return saying they owed more than they paid, and didn't pay anyway). The common cases seem to be, as you point out as well, either a tax return that justifies not paying the tax via some sort of reasoning, or simply not filing.
rdtsc 13y ago
Interesting. Thank you for explaining that. It also explains why getting a loan is not considered income, because it will be paid back. The interest you pay is income for the entity issuing the loan. If that entity now "forgives" the debt, it now becomes income for the borrower. They could presumably file a "loss" for the interest they will now not be getting. Did I get that right? This would also mean this kind of open a possibility of tax fraud. Companies issuing "loans" to employees, instead of paying salaries. I am sure IRS has something against that as well.
- ChuckMcM 13y ago
  Pretty much. If you went to the bank and they gave you $10,000 and you never had to repay it, then it is income. I experienced it when I got some restricted stock (not an option but you can't sell it right way) when my company was acquired in the dot.com boom. I also got a "loan" to pay the taxes. The idea was that when the stock was available to sell, you could sell enough to pay tax on the loan forgiveness and keep the rest. (yes it was kind of convoluted but such were the times). Long story short, stock that was worth $35 in 1999 was worth $0.66 in 2001. Kinda bites big time. And yes you can take the loss, but only up to $3,000 and carry the rest forward to the next year. I believe that last year was the first year I didn't have any dot.com losses I could claim any more on my taxes :-).
malandrew 13y ago
A better option would be to buy the debt and do nothing with it ever. Just hold it until the person chooses to "redeem" it. i.e. pay the face value of the debt and can afford the taxes on it. Just send them a message like: "Hey we're a non-profit founded by Occupy Wallstreeters that bought your debt dirt cheap for X dollars directly from the last debt collection agency to hold your debt. You don't need to do anything now, we'll hold onto it forever if need be. However, if it turns out you need to "check back into the credit economy", we'll sell it to you at cost. Be aware, that doing so will create "income" for you in the eyes of the IRS, so only choose to buy this back if you can also afford to pay them as well in the same fiscal year. You can visit this link and put in your current income to calculate approximately how much you would owe the IRS if we were to opt for us to forgive this debt. Again, you don't have to do anything and we're never going to call you and pester at work like credit collections do."
rtpg 13y ago
You forgot the part where $20k in unpaid bills wouldn't transform into $20k in unpaid taxes. Scale is important

deleted 13y ago

[deleted]