Forgiveness of loan to charity - cash or non cash?

Technical topics regarding tax preparation.
#101
Nilodop  
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Chay, my mood has changed. I no longer mean this. I admire your persistence.

Your hypothetical was flawed, as Nilodop pointed out way back at the beginning, making your analogy flawed as well.. Maybe even earlier, but #45 for sure.
 

#102
Chay  
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Jeff-Ohio wrote:That’s because you refuse to listen.

Interesting. When I rebut the points you make with reasoning and/or evidence, you call that "refusing to listen." I suppose "listening" only happens when I agree you're right?

You provided a hypothetical about “lending real estate.” Your hypothetical was flawed, as Nilodop pointed out way back at the beginning, making your analogy flawed as well.

You explained why you thought it was flawed in #83. I responded in #84. Your response to #84 was a non-sequitor and now a circle back to your original claim from #83. My response now will be to refer you to #84 again. It's up to you whether to actually respond to #84 or not, but let's not keep going in circles like this shall we?

Forget about accrued interest. That’s an accrual. We’re talking about principal.

We are talking about why The Blum Firm, when it comes to the preparation of Form 709, describes the best reporting practice as they do on Page 24 and 25 of the article you quoted. Page 25 has the accrued interest on it, and you're the one who brought it up. If it isn't relevant, let's forget the whole thing, accrued interest and all. If it is relevant, then you can either respond to my #99 answer to your question about the article or let that answer stand.

No mention of cash vs. non-cash in any of those sources. So they deserve zero consideration. And one of them involved the low level at the IRS, which I’ve already addressed.

See the discussion of relevance in #99 for why the sources are still relevant.

How is it a straw man argument? My donation of clothing worth $200 is “equal in force, amount AND value” of $200 in cash.

It's a straw man argument because I never used the term "equivalent" to mean equal in force, amount, value, or any combination of those three things. I used it to mean "corresponding or virtually identical especially in effect or function," which is the same way the Tax Court uses it when they describe cancellation of indebtedness as the "equivalent of cash."

Your argument is ridiculous.

Here's where you attack the straw man. While the argument you are saying I'm making is ridiculous, that argument is not the argument I'm actually making.

Here, let me argue in circles again: The donation of a Receivable isn’t a cash donation. Removing a Liability from a charity’s Balance Sheet, without the payment of cash “within the taxable year,” is not a cash contribution.

And let me reiterate that you haven't come up with any reason why constructive transfers don't apply to section 170.

You can’t have it both ways. Either you are saying that the Note is Cash or you are denying the existence of the Note as a separate, distinct and identifiable asset for all purposes and are merely using the Note to the peg the value of the deduction and also, the timing of the deduction.

This is another manifestation of your false dilemma. See paragraphs 3-4 of post #38 and paragraph 2 of post #51 for why the dilemma is false, and the last part of #57 for my best guess as to why you can't accept that.

The charity already had the cash.

Two words: constructive transfer.

I know, though, that you would like to nuance this and say, “The Note isn’t the Cash. The cash simply becomes unencumbered when the note is forgiven. As a result, it is the cash that is given within the current taxable year.” Fair enough. But wrong nonetheless. If the Note isn’t the cash, then the Note is a separate, distince and identifiable asset. The unencumbered cash is simply a fallout of the current year transaction that involves a separate, distinct and identifiable asset. You’d like to ignore the current year transaction and base your conclusion on the fallout.

Yes, the unencumbered cash is a fallout of debt extinguishment. But is the note transferred before it's extinguished or not? That's the central question. If it isn't transferred, then the only way to characterize the transaction is as a constructive transfer of cash. You would have us believe that any destruction or abandonment of the note IS a transfer of the note to the charity. Your arguments as to why this is so are centered on the nature of a lending arrangement. Why doesn't the creditor retain an interest in the cash after it's been lent out? You say it's because "the accounting entries prove it out" and because "the lender can't spend it, but the borrower can."

All we need to contradict your reasoning is the Story case. You keep trying to dismiss this case because it isn't conclusive regarding the cash vs. non-cash issue. That's effectively another straw man attack because I never made that claim about the case. My claim is Judge Drennen employed a line of reasoning that is inconsistent with your claims about the nature of a lending arrangement. Like I said in #82, either the reasoning in that case was flawed and it can't be applied to other fact patterns, or the reasoning is valid and your claim about the nature of a lending arrangement is disproven. Without that support, your false dilemma disappears and we are in a world where both non-cash property transfers of notes to the borrower and "cash equivalent" constructive transfers of a loan balance are possible. Welcome to reality.

I just want to know how to report it. That is the relevant part. And as the lawyer showed, it gets reported as a non-cash gift.

What we mean by "cash" in the charitable donation context is "monetary gift". To say that a gift is of "$3,830,800 of outstanding principal" is not to say that it is not a "monetary gift". On the contrary, it looks a lot like a "monetary gift" to me.

That’s not my implication. There’s no “either” involved. Both of these things happen (although I take issue with your word “control”). One (releasing control of the cash) is the result of the other (transferring the debt).

Ok, I'll reword your false dilemma: either both of these things must always happen, with transferring the debt the controlling event, or transferring the debt never happens and the event must consist only of a constructive cash transfer. After you cast things this way, you provide examples of debt being transferred to a debtor and declare victory, saying that because things have been that way in your examples, they can't ever be the other way. The crucial piece that you haven't proven is why this type of transaction must always be framed one way or the other; that's why I call your reasoning a false dilemma.

I’ve already shown how they’re controlling. No cash was transferred to the charity in the current year. We account for things accordingly.

Your reasoning again rests on the supposition that constructive transfers don't count, which you haven't shown to be the case.

There is nothing abstract about it.

Nothing abstract about intangible assets?

There is no contradictory precedent.

Nothing contradictory about the Tax Court saying "cancellation of his debt to the corporation was the equivalent of cash" (Kniffen) on the one hand and saying "[t]he cancellation of such a chose in action is, in effect, a distribution to taxpayer of 'property'" (Kellogg) on the other?

That is the thrust of the issue. It’s a point you conveniently bypass to get to end result of your theory. Again, if your equivalency theory is true, and I give $200 worth of clothes to a charity, then I’ve given $200 in cash.

More straw man attacks. If my theory is true, and your clothing memorializes a $200 loan to the charity, and you burn your clothing with donative intent toward the charity, then you get a $200 cash donation. That's all the theory says.

Here we go. Back to Story. Peripheral comments.

Peripheral to a certain line of reasoning, but not peripheral to my claim that Judge Drennen employed a line of reasoning that is inconsistent with your claims about the nature of a lending arrangement.

Moreover, inconsistent comments by the judge, as I have pointed out with the language preceding Footnote #3.

They're only inconsistent if we accept your false dilemma as a premise. I don't.

when I present cases involving the forgiveness of a Note and the courts directly and clearly state that it was a transfer of property other than money, somehow those cases are irrelevant.

The Kellogg case is not irrelevant, and I never said it was.

Those sources say nothing of the sort.

Wrong. In the PLR, for example, check out the top of page three.
 

#103
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Just got back from my victory lap…

Thereafter, I will go donate my $200 worth of clothes to a charity and take a $200 cash donation deduction. This is a donation of a cash equivalent, according to Chay. According to Chay, it corresponds to cash or is virtually identical to cash in effect or function. I don’t know what corresponds to cash means. So to be conservative, I’ll assume my clothes don’t correspond to cash (even though I can put a dollar value on them). I wouldn’t agree that my clothes are virtually identical to cash in function, unless you make a shirt out of dollar bills. But I would agree that my clothes are identical to cash in effect, since they’re worth $200. The charity could exchange my clothes for $200 worth of goods and/or services. Further, they could sell my clothes for $200.

I’m starting to like Chay’s theory, since if I give $6k worth of clothes, I don’t need an appraisal (although Chay would have us treat it as a non-cash donation for some purposes, but then have a file a F8275, and then he’d put it down as a cash contribution on his Schedule A). This reporting is about as sensical as Chay’s theory…but if you think about, that’s not surprising.

But I’m all ears about your constructive theory. Please tell us, specifically, about the constructive transfers that your theory would entail.
 

#104
Nilodop  
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Just got back from my victory lap…

Thereafter, I will go donate my $200 worth of clothes to a charity ...
. But they'll be laundered first, right?

But on a more serious note ... We have not carefully addressed the 6662 penalty. Depending on the numbers (in an actual, not hypothetical situation), there could be a substantial or even a gross valuation overstatement penalty assertion, and the Form 8275 or even 8275R does not protect from that, right?
 

#105
Chay  
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Jeff-Ohio wrote:But I would agree that my clothes are identical to cash in effect, since they’re worth $200.

Try using that argument with the grocery store the next time you go shopping. You'll have a lot less success than if you offer to reduce the balance on a note payable to you in lieu of paying cash.

Please tell us, specifically, about the constructive transfers that your theory would entail.

The constructive transfers would be along the lines of the following:

    Petitioner has stipulated that she had the ability to repay the loans, and it is clear that the forgiveness of these liabilities effectively transferred assets from Napa to petitioner in the amount of the balances due from these loans and the accrued interest thereon.
    Merriam v. Commissioner, T.C. Memo. 1995-432

    We recognize that Orem, itself, did not actually satisfy the accrued liabilities by direct payment to, or unrestricted crediting of the accounts of, the ultimate obligees. See note 5 supra. But in substance, by accepting less cash than it otherwise would have received, it made an actual payment to petitioner which was sufficient to justify the deduction.
    Commercial Security Bank v. Commissioner, 77 T.C. 145, 148 (1981)

    R. D. Walker, supra, involved a recapitalization wherein the taxpayer exchanged his common stock for a cancellation of his indebtedness and new preferred and common stock. The taxpayer there conceded, and we agreed, that cancellation of his debt to the corporation was the equivalent of cash and constituted "other property or money" within the meaning of section 112(c) (1) of the Revenue Act of 1928.
    [...]
    John L. Hawkinson, supra, involved a reorganization of two corporations in which the indebtedness of the taxpayer to one of the corporations was canceled. We there stated, "That the debt cancellation was the equivalent of cash is apparently accepted by both parties and finds support in R. D. Walker, 34 B.T.A. 983," and concluded that on the facts presented such cancellation of indebtedness resulted in the distribution of a taxable dividend to the taxpayer.
    Kniffen v. Commissioner, 39 T.C. 553, 567 (1962)

    On Date A, US Parent transferred all of its Sub 1 stock to Foreign Parent in exchange for cash, the payment of which was effectuated by the cancellation of US Parent indebtedness to Foreign Parent (the “Sub 1 Acquisition”).
    PLR 201016048

    And we see no reason why a taxpayer cannot advance money to a charity when it is needed and arrange the transaction in such a manner that he can take full advantage of the charitable deduction provisions of the income tax statutes over a period of years, provided he does not actually part with all dominion and control over the property contributed at the time it is advanced, and truly intends to make a contribution of the property advanced over a period of years rather than all at one time.
    Story v. Commissioner, 38 T.C. 936 (1962)
While you and Nilodop take your victory laps and discuss penalties, just remember that the version of my argument that you're "starting to like" is the straw man version which you invented. No one besides you is suggesting that a taxpayer could take a cash deduction for the contribution of the note itself.

You assert that this staw man version of the argument is unavoidable because there is only one "current year transaction," and that this current year transaction must constitute a transfer of the note because it is a "separate, distinct and identifiable asset." Your assertion is firmly rooted in an accounting mindset where the only assets that matter are the ones that show up in the books. In reality, where intangibles are concerned, there exist a plethora of assets that don't register on the books until there is some kind of monetary transaction associated with them, and monetary transactions conducted using loan balances are clearly possible. You also maintain in the alternative that cash isn't comparable to other assets and can't actually be lent because "the lender can't spend it, but the borrower can." But my property is not any less my property no matter how greatly I subject it to a risk of loss, and fungibility means that one dollar is as good as the next.

Rather than attempt to counter these points, support your assertions and prove that my argument really is as ludicrous as you say it is, you are taking that outcome as a foregone conclusion and making jokes about it. Perhaps some of the participants on this thread will be fooled into siding with you. Most of them, I trust, won't be, but will instead agree with the conclusion I came to in #99. The preponderance of evidence shows that a cash contribution of a loan balance to a charity is possible.
 

#106
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The constructive transfers would be along the lines of the following:

I want to know the specifics of your constructive transfers in the charitable situation at hand, not a bunch of references to cases. That’s why I used the word “specifically.”

In other words…we have a taxpayer that previously made a cash loan to a charity. Take it from there. What are the constructive/deemed transfers in the OP’s situation?

Your assertion is firmly rooted in an accounting mindset where the only assets that matter are the ones that show up in the books.

Again, just explain your deeming to us. Prior to forgiveness, taxpayer has a Receivable, charity has a Payable. There’s nothing improper about that. I think you’d agree with that accounting starting point. If you don’t, the issue isn’t about me being firmly rooted, given that this is basic accounting.

and making jokes about it.

There have been no jokes. My clothing donation equals a cash donation under your dominion/control/cash equivalency theory. It meets all the requirements.
 

#107
Nilodop  
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I'm guilty of jokes. Corny, old man jokes.
 

#108
Chay  
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Jeff-Ohio wrote:I want to know the specifics of your constructive transfers in the charitable situation at hand, not a bunch of references to cases.

The constructive transfers would happen no differently from any of the constructive transfers in the quotes I posted. Pick one and swap out a few words to change the context to a charitable one, or you can pick the last one and leave it as is.

While we're on the topic, I want to know why constructive transfers don't apply to section 170 when they do in so many other contexts. I've wanted to know that since post #61.

Prior to forgiveness, taxpayer has a Receivable, charity has a Payable. There’s nothing improper about that. I think you’d agree with that accounting starting point.

My clothing donation equals a cash donation under your dominion/control/cash equivalency theory. It meets all the requirements.

After responding to so many posts where these same ideas appear only to have you ignore the responses and re-state the ideas, I am honestly beginning to wonder if I'm being trolled.

I'd like to give you the benefit of the doubt on that, but I just can't see any other reason for you to keep this up. What is your goal here? Does repeating something make it seem more believable to you?
 

#109
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What is your goal here? Does repeating something make it seem more believable to you?

My goal is to get you to explain the constructive aspect of your theory to us, specifically and in detail, which you still haven’t done. I’ve asked twice now.

only to have you ignore the responses and re-state the ideas

So far, all we’ve gotten from you is “generalities” on your deeming/constructive theory…not a clear, concise, specific and detailed analysis as to the constructive transfers. If Story was all about constructive transfers, I missed it, since the words “constructive” and “deemed” weren’t used a single time in that case.

But that is neither here nor there. We just need you to lay out the constructive transfers in the OP’s case.
 

#110
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Much but not all of the following is repeating part of this thread, but I'm willing to do that and add more in the pursuit of persuasion of professionals.

First, I point out that, so far as I remember, none of the authorities cited so far have involved facts in which the borrower is unable to repay all (or any) of the loan at the point where a contribution is made by the lender. That's a critical difference in facts, as I will try to explain.

When the loan is made, the borrower/charity is financially in good shape, a good credit risk, and the promissory note is stipulated to be valid, i.e., not a donation at that point. As a result, the borrower has no accession to wealth, but does have dominion over the cash that it borrowed. In Westpac Pacific, the 9th Circuit stated it like so:
One may have “complete dominion” over money but it does not become income until it is an “accession to wealth.”   That is why borrowed money is not income, even though the borrower has “complete dominion” over the cash.11  “Because of this [repayment] obligation, the loan proceeds do not qualify as income to the taxpayer.” 12


The Code in general applies even to 501(c)(3) charities. So section 61(a)(11) and section 108 are both applicable, even to a charity. And sections 165 and 170 are certainly applicable to the lender. At the point where the lender makes the decision to, and does, with donative/charitable intent, discharge the loan (by cancellation, forgiveness, or transfer), it (the loan, represented by the note) is worth, say, half its face value/balance.

If the lender were to pursue collection, he'd get half the principal back and have a loss of some kind in the amount of the other half. The borrower/charity would have income in the amount discharged, possibly excludible under some provision in section 108, plus debt repayment.

But since the lender made a donation (charitable/donative intent) at a point where the value of what he discharged is half the face of the note, that amount is a charitable gift, deductible as such by the lender/dono (if substantiated and documented), and the rest is a loss.

Even though the entire note is discharged, there never was, nor could there have been, a constructive transfer of cash, because the actual transfer occurred when the loan was made and the charity got dominion and control of the cash.

Some may say all I've done is repeat parts of this thread, but I believe the authority for the dominion and control position is new, as is the 61/108/165 discussion.
 

#111
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As a result, the borrower has no accession to wealth, but does have dominion over the cash that it borrowed.

Yes, of course. Quite logically. And the borrower has control over it too.

Even though the entire note is discharged, there never was, nor could there have been, a constructive transfer of cash, because the actual transfer occurred when the loan was made and the charity got dominion and control of the cash.

Well, we’ll see what Chay has to say about that. He’s been banging the table about a constructive cash contribution. In doing so, he talks in generalities, repeatedly, and then accuses us of re-stating ideas. He asks us why…why why why, since Post #61, constructive transfers don’t apply to Section 170. Well, Chay, give us the exact specifics of the constructive cash transfers that you speak of and we can bat them around. If it turns out that there are not any valid constructive transfers, then your question leaves us with a false choice, at least with respect to the specific facts of the OP.

We need to know the specifics of your constructive cash contributions because your theory is hard to follow. I myself would start with the charity holding the cash. But I don’t know, given your theory. You have stated that it’s still your money even though the charity is holding it. So I really don’t know where you would start the analysis under your theory. Perhaps you would start it with the taxpayer still holding the money, even though he lent it to the charity. I’m not sure. We just need to know how it all plays out. If you really are starting there, that would be interesting, since you were lecturing us on what lending is…yet, here we have Chay making a loan, but stating that he is still in deemed possession of the money (even though it is sitting in the charity’s bank account). But maybe I’m getting ahead of myself. I really don’t know what Chay is going to say. We’ll see.
But my property is not any less my property no matter how greatly I subject it to a risk of loss

Fascinating. You lend $10k out and claim the cash is still your property. Now you have $20k of assets, the cash of $10k and the $10k value of the Note. And if you actually collateralized your loan with the borrower’s land, that is worth $10k, now we’re up to $30k in value. Amazing, a $10k loan creates $30k worth of assets to the lender. But you’ll probably recognize the silliness of all of this, or at least some of it. You probably recognize that you can’t count the cash and the land, so that would drop the $30k down to $20k. Not bad, though, still a doubling of value. But this presents a little problem with your theory: The minute you collateralize your loan, you really don’t have a pure claim to the cash anymore. You want cash, but you’ve agreed to take the land as a substitute. If, for whatever reason, the borrower doesn’t make a single payment, all you can take is the land. It follows, then, that if you forgive the loan and release the collateral, you’ve really given the land (under your theory).
 

#112
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Jeff-Ohio wrote:My goal is to get you to explain the constructive aspect of your theory to us, specifically and in detail, which you still haven’t done.

We just need you to lay out the constructive transfers in the OP’s case.

In #108, I told you to pick any of the quotes I posted in #105 and swap a few words out to understand what I'm talking about. At the risk of looking obsequious, I will indulge you and do the work myself with the understanding that in return, you won't keep arguing in circles and will instead advance the discussion, possibly by revealing at last what secret mechanism prevents the same theories from applying to section 170.

    OP's hypothetical client does not actually satisfy the charitable contribution by direct payment to, or unrestricted crediting of the accounts of, the charity. But in substance, by accepting less cash than it otherwise would have received, it makes an actual payment to the charity which is sufficient to justify the deduction.
The basis for that is Commercial Security Bank v. Commissioner.

I fully expect you to object to the application of this same analysis to OP's facts on the grounds that this case dealt with a sale in liquidation of a company rather than settlement of a loan and did not involve a situation where doubt as to collectibility may have arisen. These objections will be off base. As you can see from the wide range of situations in the #105 quotes, the deemed payment of cash via the waiver of cash that would otherwise be received applies to many areas of the Code. I also do not pretend to have mastered the nuances of when a court would accept a deemed cash payment and when it wouldn't; I only argue that the transaction is as possible in a section 170 context as it is in all of these other contexts.

Nilodop wrote:First, I point out that, so far as I remember, none of the authorities cited so far have involved facts in which the borrower is unable to repay all (or any) of the loan at the point where a contribution is made by the lender.

True. You will also note that at no point have I argued that a taxpayer can always claim the entire balance of a note receivable as a cash contribution no matter the circumstances. A complete lack of collectibility on all or a portion of a note is fatal to the deduction of the uncollectible portion as a cash donation. Some doubt as to collectibility might pose an issue or it might not. Like I said, I'm not a master of the nuances in such a situation and I don't pretend to be.

the actual transfer occurred when the loan was made and the charity got dominion and control of the cash

The 9th Circuit may have said the lender gets "complete dominion" in Westpac, but that's not what the Supreme Court said in Indianapolis Power & Light, which is the precedent they were invoking at the time. The Supreme Court said the following:

    IPL hardly enjoyed "complete dominion" over the customer deposits entrusted to it. Rather, these deposits were acquired subject to an express "obligation to repay," either at the time service was terminated or at the time a customer established good credit. So long as the customer fulfills his legal obligation to make timely payments, his deposit ultimately is to be refunded, and both the timing and method of that refund are largely within the control of the customer.
Does a debtor have dominion and control over borrowed funds? Yes. Do they have complete dominion and control? No, because those funds are subject to an obligation to repay. Likewise, a creditor doesn't have complete dominion and control. But they still have some dominion and control, and in many cases the level of control is enough to use the funds to make a payment or contribution to the debtor.

Jeff-Ohio wrote:
But my property is not any less my property no matter how greatly I subject it to a risk of loss


Fascinating. You lend $10k out and claim the cash is still your property. Now you have $20k of assets, the cash of $10k and the $10k value of the Note.

Jeff, you're killing me. You posted this right as I was starting this post, a post which I had hoped would get things moving forward and stop you from all your circular arguing. This is a false problem which was dealt with in paragraphs 3-4 of post #38 and paragraph 2 of post #51. No counterargument has been offered to those points aside from Nilodop's #41 and #45, which were answered in #42 and #46.

But since you can't be bothered to read prior posts, and since I started this post in a generous mood, I'm going to go ahead and bring those ideas forward for you. Yes, I'm going to repeat myself. But to keep things interesting, I'll do so by way of a new, detailed example that you can "bat around."

What is the value in your hands of a title to real property? The title secures your ownership of the property no matter who has physical possession of it, so presumably the value will be the same as the value of the property itself.

Now let's say that there are squatters on the property with a possible claim to equitable ownership of it that would be valid under state law. In a transaction with a third party, that's going to diminish the value of the title due to uncertainty as to the title's enforceability. We don't normally think of the real estate and the title to real estate as separate assets, but in that context it makes sense to do so. Holding title means holding partial dominion over the property. The other piece required for complete dominion is actual possession of the property, which the title doesn't confer.

When we examine a possible transaction with the very squatters who are the problem, it becomes possible to guarantee complete dominion and control over the transferred property because they already have physical possession. It becomes possible to say "I'm giving this property to the squatters" even though we would say "I'm giving legal title to this property" in the case of a third party.

Now, swap out "legal title to this property" for "a note receivable," "property" for "money," and "squatters" for "debtor." It becomes possible to say "I'm giving this money to the debtor" even though we would say "I'm giving a note receivable" in the case of a third party.

In either case, no accountant in his right mind, least of all Jeff-Ohio, would put forward the analysis that we now have double the assets due to the decoupling of the document securing ownership of the asset from the asset itself.
 

#113
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I fully expect you to object to the application of this same analysis to OP's facts on the grounds that this case dealt with accrued liabilities rather than a loan and did not involve a situation where doubt as to collectibility may have arisen.


I object because you won’t just take the OP’s situation – involving a loan to a charity – and then a discharge of that loan – and simply analyze that fact pattern. Instead, you try to sandwich the OP’s fact pattern into a cash basis taxpayer that sold its assets, including the accrued ones, and the buyer assumed the seller’s liabilities, including the accrued ones. So, it’s not just the non-loan issue I take exception to, it’s the fact that a sale was involved. There is no sale in the OP’s fact pattern. Further, the case involved an assumption of liabilities, not a discharge.

Why don’t you do it – why don’t you take the facts as the OP gave them to us and then tell us about the constructive cash transfers?

I only argue that the transaction is as possible in a section 170 context as it is in all of these other contexts.


Then put your money with your mouth is and detail out the constructive cash transfers in the OP’s situation.

Do they have complete dominion and control?


Now you’re altering your argument. And it matters little. When the utility customer conveyed the cash, he no longer “owns” the cash. What he owns is the asset that replaced the cash that he conveyed. If it were true that he owned no asset after the conveyance of the cash, except for the cash, then if the utility company just kept the cash and never gave it back, he would have no recourse to collect it. What allows him to collect it are the rights afforded him by the asset he does now own, which is the Receivable.

The title secures your ownership of the property no matter who has physical possession of it, so presumably the value will be the same as the value of the property itself.


A title is just evidence of ownership. A note isn’t. If the value of the title was really equal to the value of the underlying real property, well then, since I hold both, there you go again, doubling my asset value…

Holding title means holding partial dominion over the property.

No it doesn’t. You either own the property or you don’t. Title is just evidence of ownership. It’s not an asset in and of itself. If you retain the title in your deed-for-contract sale, as security in case you don’t receive full payment, guess what: You still have a sale for income tax purposes. You don’t keep the real property on your books and that’s because you sold it. Instead, you book up a Receivable. This “partial dominion” you speak of doesn’t hold back the transfer of property for income tax purposes…as much as you’d like to believe it does.

…which leads me back to what I’ve asked numerous times: What exactly are the constructive cash transfers in the OP’s situation? What is your starting point? Taxpayer lent cash to the charity. Are you going to start the analysis with the taxpayer still owning the case? I’m curious. The court in Indianapolis Power certainly didn’t say that the Power Company didn’t own the cash. It just said it had an obligation to repay it.

The other piece required for complete dominion is actual possession of the property

Wrong. In the case of a loan, or a utility deposit, the other piece required for complete dominion is for the debtor to also hold the Receivable. It is the possession of that property that is the deciding factor. And since the debtor did not hold that in Indianapolis Power and Light, at least not initially, there was no income inclusion in that case, at least not initially. Hence the court’s repeated use of the words, “at the time they are made.” The “right to collect” wasn’t held by the Power Company, at least not initially, such that the Power Company could merge it with its repayment obligation. The “right to collect” was only “forfeited” by the customer when the customer had an overdue, unpaid utility bill. In that case, the deposit would be applied to the overdue utility bill. No cash changed hands, but a constructive cash transfer for sure, in satisfaction of the overdue utility bill. But I digress, because OP’s situation involved forgiveness, not satisfaction.

It sure does seem that Chay, why provided us with a dictionary definition of lending, understands it this way: If I lend you $10k in cash, but retain just enough partial dominion over the money, then it is still my money. I own it. I haven’t transferred it. Therefore, I say to myself, if I own it, and haven’t transferred it, why don’t I just make it real clear and just create a Note for the loan, but I’ll keep the money in my own bank account for safe keeping. I don’t trust the debtor. Nonetheless, since we have a valid loan here, I’ll forward this repayment schedule to the “debtor” with respect to the money he never got.
 

#114
j3cpa  
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Rev proc 2019-3 section 3 item 35. I think in addition to Story. I guess we can do whatever we want.

When they write “amounts” I equate it to cash. When they write it as value, I tend to think property.
 

#115
Chay  
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Jeff-Ohio wrote:Why don’t you do it – why don’t you take the facts as the OP gave them to us and then tell us about the constructive cash transfers?

I did tell you about the constructive transfer. OP's hypothetical client does not actually satisfy the charitable contribution by direct payment to, or unrestricted crediting of the accounts of, the charity. But in substance, by accepting less cash than it otherwise would have received, it makes an actual payment to the charity which is sufficient to justify the deduction.

You can say you don't believe that applies to loan forgiveness all you want. I think it does. Let me just switch out the rest of the #105 quotes, all of which had to do with loan forgiveness:

    forgiveness of the loan effectively transferred assets from OP's hypothetical client to the charity in the amount of the balances due

    cancellation of the charity's debt to OP's hypothetical client was the equivalent of cash

    That the debt cancellation was the equivalent of cash is apparently accepted by both the charity and OP's hypothetical client and finds support in R. D. Walker, 34 B.T.A. 983

    On Date A, OP's hypothetical client received nothing of value besides intangible religious benefits from the charity in exchange for cash, the payment of which was effectuated by the cancellation of the charity's indebtedness to the client

    we see no reason why OP's hypothetical client cannot advance money to a charity when it is needed and arrange the transaction in such a manner that he can take full advantage of the charitable deduction provisions of the income tax statutes over a period of years, provided he does not actually part with all dominion and control over the property contributed at the time it is advanced, and truly intends to make a contribution of the property advanced over a period of years
This above reasoning was used by the Tax Court and the IRS, and I hereby apply the same reasoning to OP's facts. If you still won't accept it unless I provide a detailed analysis of why the Tax Court and the IRS agree that the reasoning is valid, then it must be because you'd prefer to attack bits and pieces of my analysis rather than acknowledge that no matter what you say about it, the reasoning is still valid precedent for tax purposes and accepted by the IRS. If that's your idea of "advancing the discussion," then you can count me out.

If you declare victory again due to my refusal to continue indulging your absurd line of reasoning, then I've won the argument. You will have shown yourself as unable or unwilling to distinguish the OP's facts from the facts in all of the examples above.

Now you’re altering your argument.

No, you just never understood the argument, apparently.

What allows him to collect it are the rights afforded him by the asset he does now own, which is the Receivable.

A fine parallel between real property and the title to that property, two distinct physical items which are capable of being regarded separately even though they usually aren't.

A title is just evidence of ownership. A note isn’t.

A distinction without a difference. Either way, each document lets you reclaim what's rightfully yours.

No it doesn’t. You either own the property or you don’t. Title is just evidence of ownership. It’s not an asset in and of itself. If you retain the title in your deed-for-contract sale, as security in case you don’t receive full payment, guess what: You still have a sale for income tax purposes. You don’t keep the real property on your books and that’s because you sold it. Instead, you book up a Receivable. This “partial dominion” you speak of doesn’t hold back the transfer of property for income tax purposes…as much as you’d like to believe it does.

Another distinction without a difference. In the real property example, we treat the transfer of the title as the transfer of the property, but in the case of the note we treat the transfer of the note as a transfer of the note. So what. It's obvious that from an accounting standpoint, my reasoning doesn't make sense because the money represented by the note doesn't show up anywhere. In the real world, things work differently. While the "real world" may not always be controlling for tax purposes, it sure seems like it comes into play in the area of tax law we're discussing based on the quotes I've provided.

In the case of a loan, or a utility deposit, the other piece required for complete dominion is for the debtor to also hold the Receivable.

Or for the receivable to be destroyed by the creditor.

The “right to collect” was only “forfeited” by the customer when the customer had an overdue, unpaid utility bill. In that case, the deposit would be applied to the overdue utility bill.

And it is that very right to collect which is the dominion and control over the borrowed funds. If you want to call a legally valid right to take back property that you previously had in your possession something other than "ownership," I'm fine with that. Just tell me what language you want to use. Whatever it is, it allows the creditor to retain enough dominion and control over the cash that they can still use it to make a deemed cash payment to the debtor.

No cash changed hands, but a constructive cash transfer for sure, in satisfaction of the overdue utility bill. But I digress, because OP’s situation involved forgiveness, not satisfaction.

Good, an attempt to distinguish the OP's facts. Let's explore this some more. You claim that while constructive cash transfers can happen in the case of "satisfaction," they can't happen in the case of "forgiveness." Why?

It sure does seem that Chay, why provided us with a dictionary definition of lending, understands it this way: If I lend you $10k in cash, but retain just enough partial dominion over the money, then it is still my money. I own it. I haven’t transferred it. Therefore, I say to myself, if I own it, and haven’t transferred it, why don’t I just make it real clear and just create a Note for the loan, but I’ll keep the money in my own bank account for safe keeping. I don’t trust the debtor. Nonetheless, since we have a valid loan here, I’ll forward this repayment schedule to the “debtor” with respect to the money he never got.

This is an example of the fallacy of equivocation. In the first underlined segment, you use the word "transferred" to mean "give ownership." As you progress, you switch your interpretation of the word to "give physical control."

So, no, that's not the way I understand lending.
 

#116
Chay  
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j3cpa wrote:Rev proc 2019-3 section 3 item 35. I think in addition to Story. I guess we can do whatever we want.

When they write “amounts” I equate it to cash. When they write it as value, I tend to think property.

I agree that "amounts" translates to cash.

The source you referenced, I believe, shows that the question isn't fully settled, and may never be, due to "the inherently factual nature of the problems involved." In some situations the IRS might accept the cash argument while in others they might not. My guess is that the primary issue is the "doubt as to collectibility" concept which I discussed in #112. Whatever the case, we should be careful in this type of situation and cover our bases.
 

#117
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Rev proc 2019-3 section 3 item 35.


I pointed out, a long while ago, that this is a “no rule” area for the IRS.

I think in addition to Story. I guess we can do whatever we want.

You’re losing me. Rev Proc just says the IRS won’t rule on it. And the issue they won’t rule on is the year(s) in which the deduction is allowed. What you cited has no relevance to the cash/non-cash issue. As such, this comment:

When they write “amounts” I equate it to cash. When they write it as value, I tend to think property.


…is pretty meaningless. Not only are you reading too much into the few words under Item #35 in the Rev Proc, as if it is speaking to us about the cash vs. non-cash issue, your conclusion is off base. That is, not sure why you’d equate the word “amount” with cash only. Are you saying that if I donate my stock to a charity, I don’t get to deduct any “amount?” And are you saying that if I donate $100 in cash to a charity, I get no deduction for the value of my contribution?

Item #35 just says, “as contributions.” It is not trying to differentiate between cash and non-cash. It is speaking to the issue in general…just like Story was. And it is telling us the IRS won’t rule on it.

I agree that "amounts" translates to cash.


See above and good grief. The issue you say the few words are speaking to isn’t even being contemplated in those few words. #35 of the Rev Proc is speaking about the arrangement and deductions in general. It is not speaking to cash and/or non-cash specifically.

The source you quoted, I believe, shows that the question isn't fully settled


It shows nothing about the issue we are talking about here.

I did tell you about the constructive transfer.


Just stop. I’ve asked you repeatedly to walk us through the constructive transfers IN THE OP’S CASE. You refuse to do so. You continue to pull from other cases and replace words. I cannot even tell where you’d start your analysis. Presumably, it would start with you transferring cash to the charity, but arguing that you never transferred the cash. And then, if we pretend the charity spends all the money, you’d use some fungible theory to support the notion that it really is the charity’s money that has spent, so that charity should account for its spending on its books, even though you just told us that you didn’t initially transfer any money to the charity, owing to strings attached (i.e. retained partial dominion). I’m just guessing this is how you’d start your analysis, you haven’t told us and you refuse to answer the question.

If you declare victory again due to my refusal to continue indulging your absurd line of reasoning


When someone argues that constructive cash transfers have taken place, it is not absurd, whatsoever, for someone to say, “Please explain yourself – specifically and in detailed fashion – with a specific tracing of the constructive cash funds.” That is not absurd. It is not too much to ask.

But obviously, it is too much for you to answer. Your sloppy, messy theory isn’t so easy to explain when it comes right down to it. And you won’t answer it because you know Nilodop had it right when he said, in #110:

Even though the entire note is discharged, there never was, nor could there have been, a constructive transfer of cash, because the actual transfer occurred when the loan was made and the charity got dominion and control of the cash.


A distinction without a difference.


Rather, a highly important distinction that reflects your knowledge of property law.

This is an example of the fallacy of equivocation.


No, Chay. The only fallacy here is your idea that you retain ownership over the cash, even when it has been transferred. That is the equivalent of not transferring it at all. Ownership hasn’t changed.

I’ll say it again:

I will take your refusal as a full concession. Your arguments here are terrible and reckless.
 

#118
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I concede that your knowledge of tax laws is alot better than mine.

I understand the no ruling. The wordings to me implied that it can be treated as cash vs property, never mind the deductible periods.

what is the amount of the car you donated? or what is the value of the car you donated?

what is the amount of the stocks you donated? or what is the value of the stocks you donated?

there is a difference to me.

I said we can do whatever we want because of the no ruling. In OP's case, I'd treat it as cash and hash it out with the auditor if it gets to that stage. I'd make sure to come back to this thread as you have made extensive explanations one way or another.

I think you said plenty to make your case, which is very strong. Not sure why you have to go through a lot of lengths to prove your point further?
 

#119
Chay  
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Jeff-Ohio wrote:not sure why you’d equate the word “amount” with cash only. Are you saying that if I donate my stock to a charity, I don’t get to deduct any “amount?” And are you saying that if I donate $100 in cash to a charity, I get no deduction for the value of my contribution?

In this context, you should equate "amount" with cash because the revenue ruling refers to a "taxpayer who advances funds" and subsequently wishes to deduct "amounts forgiven." "Amounts" refers to the "funds," and "funds" as used is defined as "available pecuniary resources." "Pecuniary," of course, means "monetary," and Treas. Reg. § 1.170A-15 provides for equivalent treatment between "other monetary gifts" and "cash."

Under your theory, the deduction is for the note itself and not for the monetary amount represented by the note. Thus, you would argue that a taxpayer may never deduct an "amount of funds forgiven" and must instead deduct the value of the portion of the note that has been contructively given to the charity by way of cancellation. To be sure, you would put an "amount" on Form 8283 when claiming the deduction, but the amount would be a measurement of the value of the note and would not be the "amount of funds forgiven," even if the numbers happen to be the same.

If your theory were as obviously correct and settled as you seem to think it is, the IRS would have no reason to decline to rule on whether or not a taxpayer "may deduct as contributions [...] amounts [of funds] forgiven."

#35 of the Rev Proc is speaking about the arrangement and deductions in general. It is not speaking to cash and/or non-cash specifically.

It's speaking, specifically, about whether or not a taxpayer may deduct amounts of funds forgiven via endorsements on a promissory note. "Funds" is specifically a term for money, and that's specifically what we mean on this thread when we say "cash."

I cannot even tell where you’d start your analysis. Presumably, it would start with you transferring cash to the charity, but arguing that you never transferred the cash. And then, if we pretend the charity spends all the money, you’d use some fungible theory to support the notion that it really is the charity’s money that has spent, so that charity should account for its spending on its books, even though you just told us that you didn’t initially transfer any money to the charity, owing to strings attached (i.e. retained partial dominion). I’m just guessing this is how you’d start your analysis

That is a surprisingly accurate synopsis of my theory. So, I suppose you have been paying attention but just couldn't be bothered until now to address what I was actually saying?

The only problem with the synopsis is that you're equivocating on the word "transfer" again, just like in #115. The argument would be that I never surrendered all dominion and control over the cash, not that I never transferred it.

When someone argues that constructive cash transfers have taken place, it is not absurd, whatsoever, for someone to say, “Please explain yourself – specifically and in detailed fashion – with a specific tracing of the constructive cash funds.” That is not absurd. It is not too much to ask.

You're right, that part isn't absurd. What is absurd is that you refuse to acknowledge that constructive cash transfers can happen due to forgiveness of debt and are willing to take my refusal to explain this concept to you as proof that they can't happen, when I've presented multiple IRS/Tax Court sources taking it as a granted that they can happen. You are essentially saying "Aha! Chay won't explain constructive debt cancellation cash transfers to me, so he, the IRS and the Tax Court must all be wrong, and I don't need to worry about whether they might apply to section 170."

I would rather see you declare victory on such laughable grounds, proving your position to be without merit, than help you to continue avoiding the real question. That question is one which you were refusing to answer before it was cool, all the way back in post #61, when I asked you for your argument as to why the concept of constructive transfers doesn't stretch to section 170.

A distinction without a difference.


Rather, a highly important distinction that reflects your knowledge of property law.

That's virtually the same thing you said in #83. I answered in #84 by pointing you to #42 but invited you to explain yourself if you actually had something new to say. So, do you have anything new or is this just more arguing in circles?

This is an example of the fallacy of equivocation.


No, Chay. The only fallacy here is your idea that you retain ownership over the cash, even when it has been transferred. That is the equivalent of not transferring it at all. Ownership hasn’t changed.

You're equivocating again. "Transfer" doesn't inherently mean "give ownership." That's just how you're using it in the underlined segment. It actually means "to make over the possession or control of."
 

#120
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what is the amount of the car you donated? or what is the value of the car you donated?
what is the amount of the stocks you donated? or what is the value of the stocks you donated?

#35 of the Rev Proc is speaking to “amounts” one “may deduct as contributions.” “Amounts” is referring to the deduction proper…the amount that shows up on the tax return. That amount could be tied to cash or non-cash property.

I said we can do whatever we want because of the no ruling.

Good for you. Just because the IRS won’t rule doesn’t mean a judge won’t. You have zero protection “just because” the IRS won’t rule. Further, the issue the IRS won’t rule on *isn’t* the issue that is the subject of this thread. So, your reliance on this “no rule” idea is misplaced on a few grounds.

In OP's case, I'd treat it as cash and hash it out with the auditor if it gets to that stage.

Yeah, and what would you do when the auditor won’t budge? You’d go to court and you’d have to rely on Chay’s Partial Dominion & Control Possession Constructive Cash Contribution Theory.

Not sure why you have to go through a lot of lengths to prove your point further?

Because Chay keeps responding, that’s why.
 

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