Forgiveness of loan to charity - cash or non cash?

Technical topics regarding tax preparation.
#61
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Jeff-Ohio wrote:You’re reading way too much into this case.

No, the language used was quite clear. The best you can do in response is put up an argument as to why the problematic elements of the case no longer matter in "the changed landscape". Because the goal of a theory is to explain observations in the simplest way possible, your theory is still that much weaker.

All I know is that with Cash, basis always equals FMV. Your theory invokes the idea that it doesn’t.

Really? I wasn't aware of that element of my theory. I thought I was saying the exact opposite in #35 and #42.

And also note, your theory wouldn’t adequately cover a situaiton when then Receivable was actually worth more than the amount advanced.

Sure it would. Forgiving the balance of the receivable results in a cash donation and a deduction equal to the balance forgiven. Donating the receivable itself results in a non-cash donation equal to the value of the receivable.

Your theory also falls flat as to the Sec 170 actual payment requirement within the taxable year.

Only if you misinterpret the requirement to exclude constructive transfers such as forgiving a loan balance or signing over the title to real estate that is currently rented to the charity. Constructive receipt, and constructive payment by corollary, are concepts that stretch to all aspects of the Tax Code. What is your argument as to why they don't stretch to section 170? Why do you think the IRS didn't bother trying to make such an argument in the Story case?

I have no problem with the result and analysis in Story.

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.

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.

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. But you also agree that the loan in Story was bona fide. The loan in this thread is bona fide. We don't know what the lender was thinking when they initially made the loan, but why should that matter? Does the recognition of COD income depend on the original intention of either the lender or the borrower? Does the ability to make donations depend on why the asset to be donated was originally acquired?

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.

Fantastic. My theory doesn't say anything like this, so I'm in the clear.

The old Rev Rul is pretty clear when it comes to an ordinary loan.

Which one, and does it actually say that you can't forgive part of a loan balance for a cash deduction? Does it even address what happens in that situation at all?
 

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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. If you are hanging your hat on that case deciding the cash vs. non-cash issue, it’s a real thin thread, given that the case had nothing to do with the main issue in this thread. There was a reason Nilodop wrote what he wrote in Post #60. It was perfectly expected that this bogus case would be seized on to decide the issue at hand. That case doesn’t decide the issue, it had no reason to decide the issue, and it didn’t decide the issue.

I wasn't aware of that element of my theory.

Sure it would. Forgiving the balance of the receivable results in a cash donation

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.

Only if you misinterpret the requirement


Don’t think so. You don’t make a actual payment of cash without cash changing hands within the current taxable year. There’s not much to interpret.

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. I’m saying to stop reading so much into Story. 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. These days, there are strict substantiation requirements. The IRS will toss out your deduction if those are not met. They could care less if it really was a valid donation.

Fantastic. My theory doesn't say anything like this, so I'm in the clear.


Sure it does. Remember, your theory is practical. It’s simple. 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, which pretty much every judge can.

Just answer us this, in front of everyone:

Taxpayer lends $1m to a charity. Several years down the road, he forgives all of it. You would advise this taxpayer to not get an appraisal, since those are not needed for cash donations, is that right?
 

#63
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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.

Seems pretty consistent to me. Anyways, I'm not concerned about what the donation is called or whether or not the court implied that the donation could have been construed as a donation of the note itself. Both cash and a note receivable are property, and both are capable of being donated. What I'm concerned about is the part at the end where the court characterizes an advance of money (i.e. a loan) as a transaction in which the taxpayer has not actually parted with all dominion and control over the money and still may make charitable gifts of that money at a later time. Put all the spin on that you want, you still can't deny it conflicts with your argument and not with mine.

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.

I have no idea what you're talking about.

You don’t make a actual payment of cash without cash changing hands within the current taxable year.

You do if it's a constructive payment, such as the type made in the Story case. I'm still waiting on that argument as to why the concept doesn't apply to section 170.

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.

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, while accounting entries and your opinions are not.

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.

So what are you saying? What would it take for the result and analysis in Story to apply to any other set of facts?

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.

And it wouldn't have mattered if they did. The part that contradicts your theory would still contradict it.

Charity ends up with $10k of my cash. My cash charitable deduction might be something different.

Right, because there are different arrangements in place with regard to each portion of cash. I give up complete dominion and control over one portion but not over another. Constructive payments can be made. Lending really is lending.

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.

I'm taking all aspects of the arrangement into account. You're the one with the limited view based on accounting concepts and terminology.

Does it even address what happens in that situation at all?


Only if you can put 2 and 2 together

Looks like I must have missed that lesson back in school. I'm stumped. Please teach me how to put 2 and 2 together and determine the outcome of forgiving part of a loan balance based on your old revenue ruling.

You would advise this taxpayer to not get an appraisal, since those are not needed for cash donations, is that right?

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. Now, how about you answer in front of everyone how that helps to support your argument in any way?
 

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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.
 

#65
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Jeff-Ohio wrote:That’s what I thought.

And just like I thought, it's not even relevant to your argument.

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.

It doesn't matter what the judge was trying to do or what reasoning he could have employed. The fact is that he employed a line of reasoning that is inconsistent with your claims about the nature of a lending arrangement. No matter how much you object around the edges, you can't change that fact.

You've also got cause and effect reversed in the IRS' argument. They argued that because the loan wasn't bona fide, there was a loss of dominion and control. And guess what? That implies that a bona fide loan maintains dominion and control.

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.

All of this was dealt with way back in #38 and #40.

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.

Yes, a higher degree of control. But we all agree the loan was bona fide, and the judge's reasoning that you keep trying to qualify was presented in a very broad and non-qualified way. And when we look further into that case to find what is really meant by "dominion and control", we find the following:

    Respondent also argues that no true obligation on the part of Soldiers Chapel to repay the amount advanced by Nelson arose in 1955; consequently, Nelson lost all dominion and control over the money advanced in 1955 and gave nothing by canceling portions of the principal of the note at the end of 1955 and in subsequent years. The notes, on their faces, evidenced a binding obligation to pay a sum certain, and there is no evidence upon which to conclude that they were without consideration, invalid, unreal, or otherwise than what they purported to be. So far as we can determine they were valid negotiable instruments, however collectible they might have been.
Whether the petitioners had "dominion and control" over the money was entirely a question of whether or not the obligation was bona fide. It was; hence, no loss of dominion and control. As you've said yourself, the entire case revolved around that particular point. All of the evidence, including the petitioners' desire to influence the charity, went toward proving that the obligation was bona fide, which in turn showed dominion and control. There was no corollary line of reasoning that linked the petitioners' influence over the chapel construction with their ability to control funds that were in the possession of the charitable organization.

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.

I don't know where you're getting this. If the entire $10k is forgiven, then that's the amount of the deduction.

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.

And more of your reluctance or inability to state why the concepts of constructive receipt and payment don't apply to section 170.

I have no problem with the results in Story.

Then you admit that it's possible to retain dominion and control over cash after it's been lent out and later claim a deduction under section 170 for relinquishing that dominion and control.

It's only precedent for cases involving identical facts

I'm pretty sure that's not how case law works. I've seen opinions quoting non-central language from other opinions to build support.

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.

Alright. A starting point for consensus. So, the Story situation can be reproduced, and constructive payments are possible. This means you'll be backing off from your strict "actually paid" interpretation of section 170, right?

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.”

"[T]he property contributed", in the relevant context, refers to money. It can be constructively paid because there is dominion and control over it after it is lent so long as the loan is bona fide. This portion of the Story case conflicts with your theory but not with mine.

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

Point taken. That's a real possibility.

“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.”

Sure. I never disputed that giving a bond as a noncash donation was a possibility.

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.

Depending on the size of the gift, I'd do the same. If the appraisal came back with a lower FMV than the balance remaining, I'd discuss whether or not to take the position that the donation is a cash donation with the client. If they wanted to go cash, I'd sign the return, no problem.

If we're talking about $10,000, I'd call it a cash donation and then call it a day.
 

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And just like I thought, it's not even relevant to your argument.

Rather, it is the crux of my argument. You have your theory – cash donation – no appraisal required. Yet, you’d get an appraisal. Those are only required for non-cash donations.

It doesn't matter what the judge was trying to do.


For good reason, Nilodop stopped talking about this irrelevant case a while ago – you know, the case that included tangential and peripheral comments, and sometimes unintelligible comments, about “the property” – the one where it’s unclear what “property” he’s actually talking about. 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.

I don't know where you're getting this. If the entire $10k is forgiven,


No, Chay. 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.

I've seen opinions quoting non-central language from other opinions to build support.


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. What you want to do is treat the actual contribution of the Note to create a fiction: Fiction being, charity repaid the loan (to the extent of value) and then I took that cash and made a deductible contribution. That is the fiction, but it’s only constructed out of the reality.

Point taken. That's a real possibility.


A real and scary possibility. One which I would not want to advise improperly on.
 

#67
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Jeff-Ohio wrote:Rather, it is the crux of my argument.

I'm sure you don't really mean this. Your argument doesn't hinge on whatever action I would take in the planning stages of a charitable contribution.

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.

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.

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.

Right, because there are different arrangements in place with regard to each portion of cash. I give up complete dominion and control over one portion but not over another. Constructive payments can be made. Lending really is lending.

Of yeah, I forget, you can’t apply your theory when the value of the Note changes.

I don't believe this follows from anything I've said, but please tell us why you think this might be the case.

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.

You are contradicting yourself with every new post. In #58 and #64, you say you have no problem with the Story decision. The Story decision describes a constructive transfer of "the property advanced", which is the money and not the note. In #62 and now in #66, you say that constructive transfers can't trump actual transfers, implying that the deduction must be for the note and cannot be for the money. So which is it?

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.

That is a possibility. But I will at least have enough support to show that under the current body of case law, the act of lending money does not preclude a subsequent contribution of that same money, contrary to what you and Nilodop have said. One source is better than no sources.
 

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Your argument doesn't hinge on whatever action I would take in the planning stages of a charitable contribution.

Your action speaks to your argument. And through your action, you have revealed that you have a low degree of confidence in your argument…by taking steps that are more consistent with my argument. All along, I’ve said it’s non-cash. That would require an appraisal. And here comes Chay wanting to get an appraisal…

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.


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.

The Story decision describes a constructive transfer of "the property advanced", which is the money and not the note.

Quit talking about Story – a case involving very unique facts and a control-freak donor because the guy’s son died and he wanted to build a memorial. This case was not in 2019, involving an ordinary loan like in OP’s case, where the IRS could argue: This is a non-cash donation of the Note. As per the RR, the deduction equals the value of the Note. The taxpayer needed an appraisal and he didn’t get one. Therefore, his deduction should be $0.

But I will at least have enough support to show that under the current body of case law,


There is no current “body” of case law that supports your position. There isn’t even a single case.

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?
 

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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…

Suppose you've got a client with a $1M loan to a charity that he wants to donate. The loan was not evidenced with a formal note, but the actions of both the lender and the borrower are sufficient to prove the loan is bona fide. In addition, if you take the position that there is a note that can be donated, the FMV is higher than the balance due on account of the creditworthiness of the charity and a precipitous drop in interest rates.

Your argument all along has been that you can't donate cash you've already lent out. So, you would conclude that a note receivable must exist for tax purposes, resulting in a non-cash donation of appreciated property when the debt is forgiven. But your argument isn't firmly rooted in case law or statute, and you would be foolish to move forward without considering that the IRS could argue that not only is a cash donation of a loan balance possible, 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.

Now let's assume for a moment that you do consider that, and you advise your client accordingly. You discuss the risks and decide to take action to bolster your non-cash position in case it's challenged. Would your action "speak to your argument" on this thread? Would your standing against my similarly poorly-evidenced argument suffer at all?

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.

The one thing you've said about this case that is relevant to my claim about it is "it’s unclear what 'property' he’s actually talking about." But that's not true. He's talking about property that's been "advanced". It is quite clear throughout the relevant paragraph and throughout the entire case that the property advanced is money. The fact that he calls money "property" may be suggestive to you of a non-cash contribution, but it shouldn't be. As you keep insisting, back in 1955 there was little difference between donating money and other property. If anything, the term merely broadens the line of reasoning so that it applies to other forms of property in addition to cash.

As to the rest of everything you've said about the case, none of it matters. Here's what matters:

  1. The IRS argued that the petitioners had lost "all dominion and control over the money advanced in 1955" because the note receivable was not bona fide.
  2. The evidence proved that the note was bona fide, defeating the argument that there was no dominion and control over the money advanced.
  3. Judge Drennen went one step further in the second to last paragraph, stating that he could not think of any reason why a taxpayer cannot "advance money to a charity" and then subsequently claim deductions "provided he does not actually part with all dominion and control over the property contributed at the time it is advanced."
Why does that matter? Because my claim is "Judge Drennen employed a line of reasoning that is inconsistent with your claims about the nature of a lending arrangement". You are seizing on aspects of the Story case that are irrelevant to that claim and railing on about how irrelevant they are to it and to everything else. But no matter how much you do that, it won't disprove my claim.

Quit talking about Story

I might do that if you would stop misrepresenting my claim about the case every time you post to this thread.

There is no current “body” of case law that supports your position.

Right, and I also didn't say there was. What I said was under the current body of case law, the act of lending money does not preclude a subsequent contribution of that same money. In case that's not clear, what I mean is that 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.

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?

I can't believe you're actually brandishing this as evidence that your claims are true. Am I going to have to spell out how fallacious that is?
 

#70
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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.


Brilliant. Now you’ve just told the Factoring Industry that what they are doing cannot be done. And you’ve turned upside down any corporate tax law that says if you distribute a Receivable out of a corporation, to a shareholder, isn’t not a sale…

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.


What would negate your position is if the contribution of the balance of your Note (an asset, and hence property for federal tax purposes) to a charity is viewed as an actual transfer…which it is. You’ve got it backwards, in arguing that it’s an actual gift of cash, which then triggers the constructive contribution of the Note. And you’ve also got it wrong that there’s an actual gift of cash in the first place, because there isn’t. There was only a loan of cash, as you state. If you’re suggesting that the gift of a promissory note to a charity isn’t an “actual” gift of the Note, and there is no case law supporting that it’s an actual gift of the Note, just let me know and then I’ll go pull some cases.

And don’t forget…I could buy your Note Receivable from you and then donate it to charity. Will your theory still tell me that I get a deduction for the Cash you previously forwarded to the charity? I suppose you’ll tell us that your theory doesn’t apply to third party notes.

Also don’t forget that in Story, the Note was secured by the Land. Under you theory, wouldn’t that indicate that the land really isn’t controlled by the charity, because it was encumbered? Yes, I think so, under your theory. This means that when said encumbrance is lifted, by virtue of the Note going away, the Land now becomes free and clear to the charity. Seems to me, under you theory, that would mean Story made a charitable contribution of the land. Quite an amazing theory you have.

None of that matters. Here's what matters:


Right. Only the words you pick, from an off-point case, matter.

I can't believe you're actually brandishing this as evidence that your claims are true.


I can’t believe that you’d get an appraisal if you know your claims to be true. If you believed your theory, you wouldn’t need an appraisal. I’m not the one being inconsistent.
 

#71
Chay  
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Jeff-Ohio wrote:Brilliant. Now you’ve just told the Factoring Industry that what they are doing cannot be done. And you’ve turned upside down any corporate tax law that says if you distribute a Receivable out of a corporation, to a shareholder, isn’t not a sale…

I haven't. But even if I did, it wouldn't change my question, which you didn't answer.

What would negate your position is if the contribution of the balance of your Note (an asset, and hence property for federal tax purposes) to a charity is viewed as an actual transfer

It's going to be difficult for you to find something that negates my position, because all I'm saying is that a cash contribution is still possible even when money has been loaned out. No matter how many sources you find that support noncash treatment, they won't support your assertion that cash treatment would have been impossible. It would be better to bring some sources that actually deny cash treatment. If you do, it's unlikely they will indicate that cash treatment is impossible across the board. It's the classical "prove a negative" problem.

And you’ve also got it wrong that there’s an actual gift of cash in the first place, because there isn’t.

I'm saying there can be a constructive gift of cash, not an actual gift of cash. I also agree there can be an actual gift of a debt obligation.

And don’t forget…I could buy your Note Receivable from you and then donate it to charity. Will your theory still tell me that I get a deduction for the Cash you previously forwarded to the charity?

It really depends on the facts surrounding the transactions.

Also don’t forget that in Story, the Note was secured by the Land. Under you theory, wouldn’t that indicate that the land really isn’t controlled by the charity, because it was encumbered?

No, it wouldn't.

Right. Only the words you pick, from an off-point case, matter.

Exactly. They are the only words that matter to my claim about the Story case, which is highly relevant to my point about the nature of a lending arrangement.

I can’t believe that you’d get an appraisal if you know your claims to be true. If you believed your theory, you wouldn’t need an appraisal. I’m not the one being inconsistent.

I don't know my claims to be true, and I don't know if a judge would agree with me or not. I also don't know if a judge would agree that my claims apply to a given situation even if the judge agrees in principle. You also don't know either of those things about your claims, or else you would have presented your clear and convincing evidence early on. As a professional, in the absence of knowledge, do you rely on faith or do you rely on sound, conservative tax planning? Based on your arguments so far I can only assume the former.
 

#72
Nilodop  
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This discussion isn't close to setting a record, but I think it may get there. (A record for what? I don't know, but something.)

As interesting as the cash or property issue is, I'm jumping back in on the capital loss debate, to which we have given short shrift. Or medium shrift. For context, let's:

Assume:
The note was a bonafide $10k loan and there was no intent, when executed, to later forgive it;
Unfavorable changes in financial condition of the charity occurred over the years from the date of the loan to the date it was forgiven;
As a result, the FMV of the note is $5k, 50% of its face and actual value at date of execution;
No principal payments have been made;
Favorable changes in financial condition of the lender/then donor occurred over the years from the date of the loan to the date it was forgiven;
As a result the borrower/charity will have difficulty in repaying the loan, and the lender/then donor is willing to and can afford to, and does with donative intent forgive the note.
Or:
As a result the borrower/charity will have difficulty in repaying the loan, and the lender/then donor is willing to and can afford to, and does with donative intent transfer the note to the charity.

For the record, I still believe with a high degree of certainty that the tax treatment would be, under both scenarios, a charitable donation of the $5k value of the note. If Jeff-Ohio and I are correct on that conclusion, are we sure there is a capital loss for the other $5k? I'm not. At least, not yet.
 

#73
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For the record, I still believe with a high degree of certainty that the tax treatment would be, under both scenarios, a charitable donation of the $5k value of the note.


Yeah, me to. And it wouldn’t matter if donor “forgave” the note or if he “transferred it to the charity,” such that that such charity effectively assumed it’s own obligation. These are identical and equal each other. And either way, this is not a Cash transaction.

If Jeff-Ohio and I are correct on that conclusion, are we sure there is a capital loss for the other $5k?


I’ve already made that point. Chay’s all over the place with his theory. He wants to use certain aspects of the Note for some things, but disavow it’s existence as an independent asset for other purposes.

It's going to be difficult for you to find something that negates my position, because all I'm saying is that a cash contribution is still possible even when money has been loaned out.


That’s possible if the charity physically repays the loan and then the former lender, now donor, contributes that cash back to the charity. Then, I will agree with you. Until then, I won’t. Until then, your fantasy fiction gets stopped at the door by the actual conveyance of the Note by the donor to the charity.

All we need is a simple case that says a contribution of a note is a contribution of non-cash property. This could be in the corporate context. This could be in the partnership context. This could be in the gift context. It could be a distribution from a corp or partnership and not a contribution. It could be any one of these things. Again, just let me know if we need a case that says a “Note” is non-cash property. I could link at least 1,000 such cases, but maybe I’ll limit it to 1 or 2, in the interests of time. Just let me know.

It really depends on the facts surrounding the transactions.


Of course it does because there is nothing simple about your theory. We now have to modify it for 3rd Party Notes that we acquired from someone else.

In the end, though, you already conceded, when you said you’d get an appraisal.
 

#74
Chay  
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Nilodop wrote:If Jeff-Ohio and I are correct on that conclusion, are we sure there is a capital loss for the other $5k?

No capital gain or loss would be recognized due to the property having been transferred as a gift.

Jeff-Ohio wrote:Chay’s all over the place with his theory. He wants to use certain aspects of the Note for some things, but disavow it’s existence as an independent asset for other purposes.

I'm wondering if it's worth asking you to elaborate on this. I have a feeling your explanation would be yet another mischaracterization of my argument. So, I'll just point out this is an unsupported claim and leave it up to you whether you want to keep going with it.

your fantasy fiction gets stopped at the door by the actual conveyance of the Note by the donor to the charity.

In the case where there is no formal note receivable, there is only one actual asset held by either of the two parties: the cash itself. The other asset is fictional. Say the lender calls up the charity and tells them he's feeling generous, so they can go ahead and keep the cash they were planning on returning to him. Now, tell us why this transaction should be construed as the imaginary "actual" transfer of a fictional asset as opposed to a legal change of ownership over a real, non-fictional asset. After that, please tell us why the same contrivances should not apply in the case where any other property besides cash has been lent to the charity. For bonus points, you could also explain why you think all of that constitutes a simpler theory than mine.

All we need is a simple case that says a contribution of a note is a contribution of non-cash property.

If you think that will negate my argument, then go for it.

In the end, though, you already conceded, when you said you’d get an appraisal.

Is that what happened, or did you concede due to your unwillingness or inability to answer the questions I've asked you and address the points I've made directly? Perhaps your reliance on misdirection belies a weak argument.
 

#75
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I'm wondering if it's worth asking you to elaborate on this.

Sure. A perfect example is what you just said:

No capital gain or loss would be recognized due to the property having been transferred as a gift.


In the case where there is no formal note receivable, there is only one actual asset held by either of the two parties: the cash itself.

Right, Chay. Just go tell the Factoring Industry that all those Trade Receivables they’ve been buying aren’t actual assets…
 

#76
Chay  
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Jeff-Ohio wrote: A perfect example is what you just said:

No capital gain or loss would be recognized due to the property having been transferred as a gift.

That doesn't show how I want to "disavow its existence as an independent asset for other purposes".

Just go tell the Factoring Industry that all those Trade Receivables they’ve been buying aren’t actual assets…

If you have a problem with my term "fictional asset", you can substitute the common law term "pure intangible". If a pure intangible right to collect money can be sold to a third party, that still doesn't mean it's relevant in dealings between the two original parties. In the case of a sale, you would first need to overcome the extinguishment doctrine. I don't think you can do that, so how about shifting back to the context of a charitable donation and addressing the points I raised in my last post?
 

#77
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If a pure intangible right to collect money can be sold to a third party, that still doesn't mean it's relevant in dealings between the two original parties.


Right. The value of that right, as embodied in the Receivable, is irrelevant. That’s why in the old Revenue Ruling, the lender’s charitable deduction was predicated on the value of his Receivable. The lender and the charity were both parties to the original transaction.

P.S. I donated some clothes to goodwill the other day. They were worth $200. I originally paid $2,000 for them. Immediately prior to the donation, I had not released any cash to the charity, similar to the guy who made a $200 cash loan to the charity with that loan still outstanding. But now, I will release the $200 in cash that is embodied in the clothes, by transferring the clothes to the charity. Therefore, I get a $200 cash contribution deduction, as per your theory.
 

#78
Chay  
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Jeff-Ohio wrote:Right. The value of that right, as embodied in the Receivable, is irrelevant. That’s why in the old Revenue Ruling, the lender’s charitable deduction was predicated on the value of his Receivable. The lender and the charity were both parties to the original transaction.

If you're talking about Rev. Rul. 58-262, I addressed that in post #35. In the context of our current discussion, I would point out that a building bond would never count as a "pure intangible", and few would call its inherent marketability into question. The bond doesn't need to be canceled in order to transfer value back to the issuer; indeed, the holder may not even possess the ability to "cancel" a bond as such.

But now, I will release the $200 in cash that is embodied in the clothes, by transferring the clothes to the charity.

I suppose you must have had a $200 note receivable scrawled onto the clothes somewhere?
 

#79
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I suppose you must have had a $200 note receivable scrawled onto the clothes somewhere?


No, not at all. Remember, under your theory, the Note IS the Cash. When you get rid of the Note, you get rid of the Cash. Don’t you remember all that talk of yours about dominion and control? You’re saying that when you cancel the note, you’re not really giving/gifting/conveying/transferring the Note, but instead, you’re giving an amount of cash equal to the value of the asset you retained, which is the Receivable. If we use your theory with anything tangible, like clothes, we get to the same result: When I give my clothes, I’m giving an amount of Cash equal to the value of clothes. I’m just not giving the clothes. Under your theory, there is no such transfer.

I would point out that a building bond would never count as a "pure intangible",


You like to muddy the waters with words like “fictional asset” and “pure intangible.” Everybody knows that a receivable is an intangible, just like stock is.

indeed, the holder may not even possess the ability to "cancel" a bond as such.


Sure he can, as to himself, which is what this discussion is all about. He can just endorse it over to the borrower, just like Story did. But none of that matters, this recent splitting-hairs focus of yours on the difference between a cancellation and a conveyance. Nor do the irrelevant issues surrounding that, like, “Maybe the borrower will re-issue the obligation.” Yada, yada. It’s all noise. When you extinguish someone’s debt, without the transfer of Cash, you’re not giving them any Cash. This is the case if you tear the obligation up (if it is in writing), or if you send a letter, or if you do both, or if you endorse it back over the borrower or whatever. You are not satisfying the borrower’s obligation with a cash payment within the current taxable year. If the borrower were to make a single journal entry on it’s books, it would debit off the obligation and credit income. Neither side of this entry involves cash. While the borrower’s obligation might be denominated in dollars, it is not being satisfied with cash dollars when forgiven. No fiction can be invoked to overcome that truth. The only way to overcome that truth is to change it by having the lender make an additional cash contribution to the organization and then the organization can repay the debt.
 

#80
Chay  
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Jeff-Ohio wrote:Remember, under your theory, the Note IS the Cash.

No it isn't. See for example paragraphs 3-4 of post #38 and paragraph 2 of post #51.

Everybody knows that a receivable is an intangible, just like stock is.

And yet the two asset classes aren't treated identically. Neither is treated the same as a pure intangible, or else the term wouldn't exist in the first place. The waters, I'm afraid, are already muddy.

But none of that matters, this recent splitting-hairs focus of yours on the difference between a cancellation and a conveyance

It's not recent. It's a point I made back in post #35 and elaborated on in #38. Nilodop answered the point with arguments about what is and isn't comparable to a loan. I didn't fully understand that counter-argument and it didn't seem convincing, so I think this point weighs in my favor.

You are not satisfying the borrower’s obligation with a cash payment within the current taxable year. If the borrower were to make a single journal entry on it’s books, it would debit off the obligation and credit income. Neither side of this entry involves cash. While the borrower’s obligation might be denominated in dollars, it is not being satisfied with cash dollars when forgiven. No fiction can be invoked to overcome that truth.

...and that brings us back to the point I made at the end of #57 and the questions I asked in paragraph 3 of #74. Your response to the #57 point was a straw man attack on things I never said and which my theory doesn't imply. You still haven't answered the questions I asked in #74. So, my position looks pretty strong here, as well.
 

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