10-Oct-2019 11:55am
Jeff-Ohio wrote:Yeah, but Chay doesn’t want to say he has a Receivable.
The Receivable is not a distinct asset under Chay’s theory. It is just the mechanism that determines the timing of the deduction.
Chay says his current year deduction is in the nature of Cash…cash he gave a long while ago. But he’s saying he really didn’t give it a long time ago, given that he wants to take a current year Cash deduction for it.
Chay is calling it a “Cash I gave awhile ago, but I Haven’t Given It Yet” Asset.
There is no Receivable Asset under Chay’s theory, and hence, there cannot be a loss deduction.
What Chay’s asset sounds like, under Chay’s theory, is a prepaid expense
If the contributed amount was $10k, and Chay’s saying it was all cash, and any deduction flowing from the transaction would be a cash deduction, you cannot parse things apart at any point and say, “This much is deductible Cash and this much is non-deductible Cash.” You can’t do that with cash (unless some benefit was received in return).
Or unless you have some misguided theory that ignores a Receivable as a separate asset, but uses its existence to determine the timing and value of the tax deduction associated with a long-ago cash advance.
jerem200 wrote:Pitch solved it! All hail Pitch!
10-Oct-2019 12:29pm
Furthermore, the question here is not whether petitioners intended to collect the debt, but whether they intended to make a gift of the amount advanced when it was advanced, or to create an obligation portions of which could be forgiven from time to time as gifts in the future. We think the latter was the case here.
10-Oct-2019 1:14pm
10-Oct-2019 1:23pm
Pitch solved it! All hail Pitch!
Indeed. Thanks for your contribution, Pitch.
10-Oct-2019 1:35pm
Jeff-Ohio wrote:Chay is merely presenting an alternative argument as to the “type” of deduction we get – cash vs. non-cash.
So, the $10k in cash you “lent” to charity 5-years ago, which is now insolvent, magically becomes cash you gave in the current year by virtue of your current year forgiveness of a worthless Receivable.
Add the valuation problem to all the other problems of your theory.
10-Oct-2019 8:29pm
If true, it shouldn't matter why the lender created the obligation or what they were planning on doing with it; they lose ownership of the cash all the same. Thus, the Story case conflicts with your theory.
11-Oct-2019 4:22am
Jeff-Ohio wrote:It matters if the “obligation” is bona fide or not. That was the seminal question in Story. If bonafide, forgive as time goes by and you get the deduction accordingly. If not bonafide, there was no debt to forgive in the first place. Therefore, the deduction all hits in Year1. That’s the gist of Story.
No real mention of the type of the deduction – cash or non-cash.
But you apparently don’t like those authorities, nor the Rev Rul, instead opting for the esoteric, magical accounting theories of Post #51.
And here’s a newsflash: When you make a loan, you no longer own the cash. It’s basic. I’m pretty sure that when the charity records the entry to book up the forgiveness, there won’t be any credit to Cash.
Tons of holes in your theory – it applies to this, it doesn’t apply to that, it has to be modified for this, etc., etc., etc. Compare and contrast to a simple theory that passes muster no matter the situation.
11-Oct-2019 9:37am
Wrong. The mention is right here:
Your problems with my theory all spring from the fact that you are stuck in an accounting mindset where nothing exists or has relevance unless a dollar figure is attached to it.
If you could clear your head of all that and approach things from a practical standpoint
11-Oct-2019 10:10am
11-Oct-2019 10:13am
11-Oct-2019 10:50am
Jeff-Ohio wrote:You’re reading way too much into this case.
All I know is that with Cash, basis always equals FMV. Your theory invokes the idea that it doesn’t.
And also note, your theory wouldn’t adequately cover a situaiton when then Receivable was actually worth more than the amount advanced.
Your theory also falls flat as to the Sec 170 actual payment requirement within the taxable year.
I have no problem with the result and analysis in Story.
But it won’t hold up in any factually dissimilar situation, such as the OP’s situation, which involves an ordinary loan from what I can see and no serial forgiveness.
Any theory premised on the fact that I advanced Cash of $10k and my deduction might be something different falls short of being able to classify the donation a cash donation.
The old Rev Rul is pretty clear when it comes to an ordinary loan.
11-Oct-2019 12:42pm
No, the language used was quite clear.
I wasn't aware of that element of my theory.
Only if you misinterpret the requirement
Then I assume you have no problem with the concept of retaining "dominion and control" over cash after it's been lent out and claiming a deduction under section 170 for relinquishing that dominion and control.
You seem to be saying that in order for Story treatment to apply, the lender must have intended to eventually make gifts from the beginning.
Fantastic. My theory doesn't say anything like this, so I'm in the clear.
Does it even address what happens in that situation at all?
11-Oct-2019 2:52pm
Jeff-Ohio wrote:No, the language used was quite clear.
The language was all over the place. And that’s because the case had nothing to do with cash vs. non-cash. “Property” was used to describe the Note in that case. It was also used to describe the Cash. And it might be used to describe the construction costs.
Only because you want to parse the cash given up into cash given up, plus or minus something that isn’t cash. Makes a lot of sense, when in fact, all that was given was Cash.
You don’t make a actual payment of cash without cash changing hands within the current taxable year.
Then I assume you have no problem with the concept of retaining "dominion and control" over cash after it's been lent out and claiming a deduction under section 170 for relinquishing that dominion and control.
Yeah, I have a big problem with that, because that’s not the case with a loan. The accounting entries prove it out.
You seem to be saying that in order for Story treatment to apply, the lender must have intended to eventually make gifts from the beginning.
No, I’m not saying that.
It is not on point. The IRS made no argument about valuation in that case. The IRS made no argument about cash vs. non-cash.
Charity ends up with $10k of my cash. My cash charitable deduction might be something different.
It’s pretty incredible that you wish to recognize the Receivable, but not as an Asset. You just want to take certain aspects of it to determine the highly relevant cash deduction and then argue that that’s all your doing with it.
Does it even address what happens in that situation at all?
Only if you can put 2 and 2 together
You would advise this taxpayer to not get an appraisal, since those are not needed for cash donations, is that right?
11-Oct-2019 4:10pm
No, I would chicken out and tell him he needs an appraisal because it may or may not be a non-cash contribution of a note receivable.
Put all the spin on that you want, you still can't deny it conflicts with your argument and not with mine.
I have no idea what you're talking about.
You do if it's a constructive payment, such as the type made in the Story case.
Aha, so you do have a problem with the result and analysis in Story after all.
Unfortunately for you, Story is precedent for tax purposes,
What would it take for the result and analysis in Story to apply to any other set of facts?
And it wouldn't have mattered if they did.
Lending really is lending.
11-Oct-2019 5:51pm
Jeff-Ohio wrote:That’s what I thought.
The judge’s comments were just in response to the IRS’ argument that Story parted with dominion/control in Year1, making the loan not bona fide. That’s all that comment was addressing.
In any case, if we are to dissect the judge’s words, as if they are relevant to today’s inquiry, it's disturbing that you actually agree with the judge’s comments as applied to an ordinary loan. If I make a routine cash loan to someone, I do not control how those loan proceeds are used. Now, if the proceeds are to be used to buy a specific asset, you might say I am in control of things. But all I’m in control of is the decision as to how the cash will be momentarily used. When the cash is gone, I don’t control it. And when the asset is bought, I don’t control that collateral either. The borrower does. This is why the bank branch manager isn’t lying asleep in your bed right now. I have also parted with the cash. It is no longer in my dominion. If an asset was purchased, that is no longer in my dominion either. The only thing in my control is how I act when the borrower doesn’t make a scheduled payment, pursuant to the four corners of the note. And what is in my dominion and control is the Note Receivable, which is what I got back in the agreed-upon exchange of value. I say all of this with an ordinary loan in mind.
In Story’s case, if we must, he forced the charity’s hand by forcing his specs on the charity. Further, he insisted he be the one to supervise and manage the project. A higher degree of control there, hence the judge’s comments being understandable.
That charity ended up with $10k in cash. The donor is owed nothing back. But under your theory, the deduction might be higher, lower, or equal to that amount.
You do if it's a constructive payment, such as the type made in the Story case.
Again, more seizing on the irrelevant Story case.
I have no problem with the results in Story.
It's only precedent for cases involving identical facts
What would it take for the result and analysis in Story to apply to any other set of facts?
I would say you’d need identical facts.
those peripheral comments, when taken together don’t even support your theory. It is a hodgepodge of stuff that is referred to as “the property.”
if we’re talking about an ordinary loan in today’s world, you better watch out if the IRS is hell-bent on calling that a non-cash donation
“If you give a Bond you bought back to the entity that issued it, and your deduction is based on the value of the bond so given,” it’s a pretty safe bet a judge would say, “Sure sounds like you gave the bond. It clearly had value, since that’s what the deduction is predicated on. If something has value and goes away, I’d say that specific thing is what was given, thereby causing it to go away.”
Now, with all that said, would I ever use Chay’s argument? Sure would, but only if client didn’t get an appraisal. I’d slap it down as a cash donation. But if we’re in the planning phase, I would undoubtedly advise the client to get an appraisal. If that advice is not given, you run a big, and unnecessary, risk.
12-Oct-2019 8:00am
And just like I thought, it's not even relevant to your argument.
It doesn't matter what the judge was trying to do.
I don't know where you're getting this. If the entire $10k is forgiven,
And more of your reluctance or inability to state why the concepts of constructive receipt and payment don't apply to section 170.
I've seen opinions quoting non-central language from other opinions to build support.
Point taken. That's a real possibility.
12-Oct-2019 10:47am
Jeff-Ohio wrote:Rather, it is the crux of my argument.
I will cease discussing that case now as well. You say it stands as precedent to support your deduction. I say it stands for the proposition that if a bona fide loan exists, then 100% of the deduction doesn’t hit in Year1.
Only a portion was forgiven. End result: We transferred $10k in cash to the charity. Charity got $10k in cash. Yet, our deduction is lower.
Of yeah, I forget, you can’t apply your theory when the value of the Note changes.
And more of your reluctance or inability to state why the concepts of constructive receipt and payment don't apply to section 170.
Why in the world would they apply when there’s an actual transfer of a Note? You want constructive to over-ride actual. I don’t think so. Moreover, your constructive transaction simply flows from the real one.
Build support as you may, with those tangential, peripheral, and sometimes hard-to-follow comments…you still won’t have enough support to convince a judge that the cash you actually gave years ago, is constructively given this year and that constructive contribution over-rides the actual contribution of the Note.
12-Oct-2019 4:07pm
Your argument doesn't hinge on whatever action I would take in the planning stages of a charitable contribution.
What I say is that Judge Drennen employed a line of reasoning that is inconsistent with your claims about the nature of a lending arrangement.
The Story decision describes a constructive transfer of "the property advanced", which is the money and not the note.
But I will at least have enough support to show that under the current body of case law,
12-Oct-2019 5:47pm
Jeff-Ohio wrote:Your action speaks to your argument. And through your action, you have revealed that you have a low degree of confidence in your argument…
There is no line of reasoning in that case, whatsoever, that said: Here’s why this is a non-cash donation…or here’s why this is a cash donation. And that’s because that issue was irrelevant. Further, I’ve already pointed to the passage that is footnoted with Footnote #3. Read it again. What property is he talking about? Two of the other four times the word “property” is used in that case, it is being used very loosely, simply to distinguish a gift all at once vs. over a period of time. And even there, he speaks of an advance of “money” and then references “property.” What’s the deal? Here’s the deal: It’s is a generic, loose and peripheral statement, with no intent to resolve any issue of cash vs. non-cash. Nilodop saw your improper reading coming.
Quit talking about Story
There is no current “body” of case law that supports your position.
In any event, you’ve told everyone what we need to know…that my argument is the better one. Why else would Chay get an appraisal?
13-Oct-2019 8:19am
it's the only way to characterize your client's transaction because they cannot donate appreciated "property" in the absence of a negotiable instrument that could reasonably be "sold" for a "fair market" value.
you won't be able to find anything in U.S. tax case law to support your position that I can't constructively contribute the balance of an outstanding loan to a charity.
None of that matters. Here's what matters:
I can't believe you're actually brandishing this as evidence that your claims are true.