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.
That’s what I thought.
Put all the spin on that you want, you still can't deny it conflicts with your argument and not with mine.
It doesn’t conflict with anything I said. 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. The judge could have just as easily said, “While, yes, he did part with dominion and control of the asset. It was no longer under his dominion and no longer under his control. What he didn’t part with was the Note Receivable.” The judge didn’t make that comment because he didn’t need to. He was simply telling the IRS he didn’t buy the idea that the entire donation should have been accounted for in Year1. Again, you are reading way too much into this case. You are seizing on wording and language that is peripheral and tangential to the focal point in the case. You’re using it to resolve an issue that the judge wasn’t trying to resolve. That non-focal point – cash vs. non-cash - wasn’t even an issue. Even if the IRS said, “Your honor, we believe this was a non-cash donation!!!” You know what the judge would have said: “So what. Cash, non-cash it’s all the same in 1955.” If the IRS makes the same argument today, you know what the judge will say, “Okay, tell me more. Because if it is a non-cash donation, the taxpayer needed a qualified appraisal.” Again, the cash/non-cash thing wasn’t an issue in the case. Anything you are trying to read into that case to advance your cash vs. non-cash position is off point.
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. And again, only in response to the IRS’ argument.
I have no idea what you're talking about.
That’s odd. 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.
Aha, so you do have a problem with the result and analysis in Story after all.
No, not really. I have no problem with the results in Story. IRS didn’t make a non-cash argument. IRS didn’t make a valuation argument. The reason the IRS didn’t make these arguments is because it didn’t matter. Their argument was that the note wasn’t bona fide. That was the issue. Once that was dispatched with, in the taxpayer’s favor, the taxpayer wins. My issue with the dominion and control argument is explained above. As stated, and first, the D/C argument was directed at the IRS’ argument. And second, as stated, Story involved very unique facts. Applying the judge’s words to an ordinary loan situation falls flat. And third, as stated, even if the judge said, “D/C was lost,” he still would have concluded that the Note had value and that’s what was given. But that wasn’t necessary, since all the judge had to do was to decide if a full gift was made in Year1.
Unfortunately for you, Story is precedent for tax purposes,
It's only precedent for cases involving identical facts, which makes it irrelevant to the OP. And the stuff in the case that was peripheral to the main issue (like if this was a cash or non-cash donation) has zero precedential value, because that case wasn’t deciding any peripheral issue. Yet, you continue to seize on these peripheral comments and use them to resolve an issue that that case was not trying to resolve. Of course, the minute that case was posted, Nilodop knew exactly what you’d do. I did too.
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. That’s why I said this case, with peripheral comments about the issue at hand, is irrelevant. And, mind you, 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.”
And it wouldn't have mattered if they did.
With the unique facts as they were, maybe not. And because it was 1955, maybe not. But 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. When you point to your Story case, they will shred it apart is irrelevant, as I have done herein.
Lending really is lending.
Right. Just like endorsing Notes back to the borrower are transfers of assets.
Whey they say, “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.