[IDunnoItDepends]

Would forgiving a bonafide loan to a charity be considered cash or non-cash? Unfortunately, I think it is non-cash. Any support for otherwise?

Cash contributions are contributions you give to a qualified organization which you can deduct from your earned income if you are itemizing your deductions. Cash contributions obviously include cash payments, but also includes payments by check or credit card.

[HowardS]

Doesn't a cash loan that isn't repaid become a cash donation?

[Nilodop]

That's what OP is asking. Is it a cash contribution or a contribution of a note receivable?

[IDunnoItDepends]

Right, wouldn't the client be giving the charity their note back and not a transfer of cash in the current year? The transfer of cash happened X years ago.

I'm guessing I'm asking more for a reporting perspective... Would we report it simple as a cash contribution on Schedule A or would we have to include it on Form 8283?

[sjrcpa]

Client is cancelling charity's note. Client is not donating a Note Receiveable. I vote for cash contribution.

[HowardS]

Back in the day I would have debited notes payable, credited contribution and sent the good man a receipt for the amount of debt forgiven, treating it as a cash donation. I have a feeling Len is about to teach a class.

[Nilodop]

Interesting theory. So, on that theory, and assuming there was really a note that the donor originally expected to collect, or at least had that right along with the right to cancel should he so desire (i.e., it was not intended as a gift until he forgave it), and despite that the cash payment happened X years ago, so the charity would be hard pressed to sign an acknowledgment this year for cash received, and further assuming that the charity's financial condition had deteriorated such that full collectibility was doubtful and therefore the note's market value had declined, he'd be OK taking the contribution deduction as cash in the full amount of the original loan, not as property at its (reduced) value, all of which would give him a contributions deduction rather than a personal bad debt, all that said, is there some authority for the position?

[sjrcpa]

Class is in session.

[Nilodop]

How did HowardS know I was typing that?

[j3cpa]

Yes. Treat it as charitable contribution year they forgive the loan. Make the C3 write a note with proper documentation in case the 1040 ever gets questioned.

This is interesting read too:
http://www.naepcjournal.org/journal/issue12c.pdf

edited: by note, I meant a recognition of donation.

[Nilodop]

This is interesting read too:
Yes. Especially the discussion of

Upfront Gift If Intent to Forgive Loan?
Revenue Ruling 77-299

[HowardS]

Tax Topic 453:

Nonbusiness Bad Debts - All other bad debts are nonbusiness. Nonbusiness bad debts must be totally worthless to be deductible. You can't deduct a partially worthless nonbusiness bad debt.

A debt becomes worthless when the surrounding facts and circumstances indicate there's no reasonable expectation that the debt will be repaid. To show that a debt is worthless, you must establish that you've taken reasonable steps to collect the debt.

No indication in OP that this is a non-business bad debt and could not be collected.

he'd be OK taking the contribution deduction as cash in the full amount of the original loan

No, he's taking a deduction for the balance of the loan, not the original amount.

No indication in OP that there was an original intent to eventually forgive the loan.

[Nilodop]

No, he's taking a deduction for the balance of the loan, not the original amount.
. No indication that any principal has been paid.

Where do you stand on whether it's a cash or property contribution, which is OP's question?

[j3cpa]

isn't this cash or cash equivalent at FMV. I don't see how this could be classified as any property.

May I ask why does it matter on a 1040 standpoint? wouldn't he be able to claim the deduction at FMV regardless if its property or cash?

[IDunnoItDepends]

isn't this cash or cash equivalent at FMV. I don't see how this could be classified as any property.

May I ask why does it matter on a 1040 standpoint? wouldn't he be able to claim the deduction at FMV regardless if its property or cash?

The note has not gone bad, the client is forgiving it out of the goodness of his heart.

Cash contributions are 60% AGI limited vs 50% for non-cash. It is also reported on a different line of the return and I like to get my lines correct.

[j3cpa]

Cash contributions are 60% AGI limited vs 50% for non-cash. It is also reported on a different line of the return and I like to get my lines correct.

ahhh....... I did not know that. I'm learning about income tax everyday here.

[HowardS]

I vote cash. No cites that I could find one way or the other. Charity has completed gift and constructive receipt of the cash that was previously lent(loaned?) on the date the debt was forgiven.

[Nilodop]

Charity had actual receipt of cash years ago, so how is it constructive receipt now?

Where we are not giving enough attention is what I said (in part) in that long sentence in #7. If forgiveness was always intended, or maybe even contractually agreed upon, IRS would argue the note was a nullity and the contribution was made when the cash "loan" was made. If it was a real loan, enforceable and intended to be collected, then the forgiveness, out of donative intent at the time of forgiveness, was a gift deductible when forgiven, but not as a cash gift. Sure, they could go through the fictional steps of writing a check from the charity to the "lender" and then having him write a check to the charity, but the substance would likely be treating it as a forgiveness, a property gift not a cash gift.

[Chay]

The taxpayer is not contributing a note receivable or "a forgiveness" to the charity. Rather, he's canceling a note receivable. In so doing, he is giving up his claim on a certain amount of cash that the charity has or had at one point. Full ownership of the cash transfers to the charity as a result. It's a cash donation.

[HowardS]

It's clear all we have is opinions. Any citations one way or the other?