Jeff-Ohio wrote:Your objection completely misunderstands the definition of lend.
No it doesn’t and neither does Nilodop’s. All I retain is a “claim” to the cash, not the cash itself (despite your erroneous dominion and control argument).
In #90, I said you were arguing in circles. Half of that is that you keep restating points, the other half is that you don't properly address my responses. The above is an example of you doing both at the same time.
Your objection, found in #83, was
you don’t "lend" real estate. If you "lend" anything, it’s one small right (i.e. occupancy) and on a temporary basis. I told you in #84 that you weren't using the word "lend" correctly. Lending means
giving the right to use. It doesn't mean
lending the right to use. In #86, quoted above, you countered by restating your central claim about the nature of a lending arrangement. Not only is that response a complete non-sequitor to the prior discussion about lending real estate (the "don't properly address" piece), it doesn't
support any of the arguments you're making, but merely
restates those arguments (the "restating" piece).
Further, I wonder why this law firm, when it comes to the preparation of Form 709, describes the best reporting practice as they do on Page 24 and 25??? Why isn’t the best practice just to say “Cash” in Column B???
You could ask the same question about the example on page 26 immediately after. Although both examples could be reported that way, there are additional details that the author is recommending be included in the return. Why? Because, as she states on pages 16-17, "[a] transfer is adequately disclosed on a gift tax return only if it is reported in a manner adequate to apprise the IRS of the nature of the gift and the basis for the value so reported." Unpaid and forgiven interest was never actually in the possession of the taxpayer and so the "nature of the gift" differs fundamentally from that of other cash. Likewise, page 26 describes yet another "variety" of cash.
And if we're pulling in other professionals and their opinions to the discussion, then the following deserve consideration as well:
A Board or staff member can choose to forgive a debt and take a charitable deduction for the amount forgiven if there is valid evidence of an enforceable loan.
Lawyers Alliance for New York: Board Talking Points: Loan Repayment Challenges
Some years ago, we were involved in an IRS examination where the deductibility of a charitable contribution was brought in to question. This contribution was not your standard charitable donation. In this case, the contribution resulted from a taxpayer forgiving a loan to a charitable organization. [...] The taxpayer had a timely signed and dated acknowledgement from the charitable organization for all contributions made during the year under examination, including the amount of the loan forgiveness.
Henry+Horne "Charitable contribution through loan forgiveness" blog post
You don't get a deduction because you haven't given anything away (it is a loan, after all - not a gift). Of course, if you subsequently forgive the loan (or any portion of it), you get a deduction for the amount forgiven. Nelson Story III, 38 T.C. 936 (1962).
Thomas J. Ray, Jr., JD, "Interest-free loan to charity" blog post
No. My theory would say the cancellation is the equivalent of a gift of cash.
Oh, so now you are changing your tune from “a gift of cash” to “the equivalent of a gift of cash.” Your Equivalency Theory doesn’t hold up in a world that involves Sec 170(f). The charitable substantiation rules would toss that idea aside. The gift of ANY property, with value, could be described the way you just described it. And if that actually was a valid theory, then I must have had it right when I donated my clothes and took its FMV as a cash contribution deduction. Further, no one is denying that we can attach a dollar amount to debt forgiveness. But that doesn’t mean the forgiveness is a cash transaction. No way, no how.
"Equivalent", in the way I used it, means "corresponding or virtually identical especially in effect or function." Your response misconstrues my meaning to be "equal in force, amount, or value" and is essentially a straw-man attack on my argument. That's kind of funny, considering you were responding to the part of #84 where I suggested you take the time to understand what I'm actually saying if you plan on continuing to argue against it.
And why do you keep citing irrelevant cases?
The question we are trying to answer is "is cancellation of a charity's debt treated as a transfer of non-cash property for federal tax purposes." Non-cash property, such as a bond or promissory note, has an FMV that is lower than its face amount if there is doubt as to collectibility or below-market interest rates. The cases I cited involve cancellation of indebtedness where the cancellation did not have an FMV lower than the face amount of the debt instrument in spite of the presence of these factors. This contradiction, while not conclusive, is notable and has probative value. Thus, it isn't irrelevant.
The word I used above is “claim,” because that’s was a Receivable is. It is an asset in and of itself with an imbedded property right known as the “right to collect a sum certain.” It is a claim to the debtor’s assets. It is not cash.
The above is yet another example of you "arguing in circles." You keep trying to prove that a note receivable is not treated as cash, because apparently you think that's what I'm arguing. But it isn't. That should have been settled back in post #80 after the following exchange...
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.
...but it's not settled. I wonder why? In #94, you say
Jeff-Ohio finds your argument unpersuasive and isn’t going to waste his time re-reading your prior posts. Based on your continued failure to comprehend what I'm actually saying, I'd go one step further and say you aren't even reading my
current posts. And the reason for your refusal to read my posts, apparently, is that you don't find them persuasive and don't want to waste your time. But consider this: you're wasting even more of your time, and everyone else's, when you write counter-arguments to points that no one ever made.
For gift tax purposes, the gift “amount” is the face value of the note (assuming $0 accrued interest).
Wrong. See Treas. Reg. § 25.2512-4, which provides guidelines for FMV valuations of notes receivable. My "foray" isn't based on a misunderstanding any more than it is irrelevant. It continues to stand as yet another point that you have failed to counter.
Interesting…”transfer control of a debt.” A concept that is easy enough for most of us to absorb, especially in the “transfer” tax area…
You've got a false dilemma fallacy here. Your implication is that we are discussing a single type of transaction, the substance of which must be construed as either a creditor transferring debt on the one hand or a creditor releasing control over cash on the other. In fact, either analysis could apply depending on the circumstances. Your best argument against this observation was in #79 when you suggested that either way you look at it, I'm not actually giving the charity cash. But that argument rests on the presumption that constructive transfers don't apply to section 170. I challenged you to show why they don't apply to section 170 multiple times starting with #61. Instead of answering the challenge, you've continued to circle back to other points such as this one.
And I can't wait for a real response to my observation in #57 and #82 that accounting entries can only partially represent reality, they can't control it.
And I can’t wait to get a response to my question about the charity’s Statement of Cash Flows…
That
was my response. Accounting entries won't mean anything until you show that they are controlling for how a transaction should be treated for federal tax purposes.
Someone else, though, might point out – like the judge did in Lang - that the single summarized entry is really two entries: Debit Note Receivable, credit some type of income. And then debit Note Payable and Credit Note Receivable, assuming the debtor wants his obligation to go away.
And why doesn't the "proper" accounting entry that "reflects reality" for debt forgiveness involve debiting cash, crediting note receivable, debiting some type of expense and crediting cash? The real gift here is not the note but the act of considering the note to be satisfied. Debt satisfaction is usually accompanied by a debit to cash.
I can see the noncash argument as not worth pursuing from their perspective.
And I can see it as a slam dunk from their perspective. It’s like you’re in another world here.
I'm in a world where section 170(f)(8) doesn't have any exceptions but section 170(f)(11) has an exception for reasonable cause. The "slam dunk" cases like Villareale involve section 170(f)(8), but the noncash argument involves section 170(f)(11). Given that the argument turns on an abstract point of law with sparse and contradictory precedent, and that professionals apparently favor the cash interpretation, I think a showing of reasonable cause would be pretty easy.
Getting a qualified appraisal is inconsistent with this being a cash donation. And I’m also curious: If you do go through the trouble of obtaining a qualified appraisal, how will you report the deduction on the 1040 – will you still report it on Schedule A directly or on Form 8283 first? If the latter, will you have the appraiser sign the F8283 and also have the donee organization sign the same Form?
There's nothing inconsistent with taking a position on a return and also taking protective measures in case the IRS challenges the position. In this case, the "property" would be listed on Form 8283 as "forgiveness of $_____ in principal owed on note receivable." The entire form would be completed as normal, except the "amount claimed as a deduction" would be an amount equal to the principal forgiven. The same amount would be included on Schedule A, line 11, and a Form 8275 would be attached to the return explaining the position.
If this really is a cash donation, and the rule is we get to deduct the fair market value of the note, this means FMV could be determined by means other than a qualified appraisal. So I’m not sure why we’d go through the trouble and expense of getting a qualified appraisal when one is clearly not required for cash donations.
That's not the rule. The rule is that we get to deduct the amount of cash over which we cede all dominion and control to the charitable organization by way of a cancellation of part or all of the note. If you're still not sure why getting an appraisal might be a good idea, just go back and read every post where you warn me and others about the possibility of the IRS taking a noncash position.
Since Chay won’t listen, Jeff-Ohio recently cites a Supreme Court case that is in direct conflict to your peripheral-language cases.
No. What really happened is that since Jeff-Ohio won't listen, he recently cited a Supreme Court in order to prove that a note receivable is not treated as cash. Since that point was never at issue, and since the fact that it was never at issue had already been pointed out to him, he ended up arguing in circles.
How could someone that lends $100k to charity end up with a cash contribution deduction of something more than $100k?
You first accused my theory of resulting in this outcome in #58, and I showed you why that wasn't true in #61. From #62 through #66, you posted a series of cryptic statements supporting your accusation. In #67, I said
I don't believe this follows from anything I've said, but please tell us why you think this might be the case. You ignored that comment, and now your accusation has resurfaced in #94. Call that whatever you want; I call it "arguing in circles."
He wants to know how an appreciated position squares with your theory.
If my theory is to be applied to the transaction, the deduction would be for the basis and not for the FMV. Still, there may be a way to line up the facts with Rev. Rul. 58-262 and take the donation as noncash, even under my theory. And even if it looks unavoidably like cash to me, I'd still sign a return filed under your theory because it seems to have a reasonable basis.
The cancellation of such a chose in action is, in effect, a distribution to taxpayer of "property" in the hands of the corporation. We are unable to see how it can be regarded as a liquidating dividend of "money" to the taxpayer.
Finally we're back on track. The Kellogg case speaks directly to the question "is cancellation of a charity's debt treated as a transfer of non-cash property for federal tax purposes." I hope you'll continue to focus the discussion on that question and not keep going in circles.
My own research shows that when a corporation cancels the debt of a shareholder, the transaction is usually treated as a non-cash distribution of the loan. See
Rev. Rul. 2004-79 and section IV.C. of
this article. The Kellogg case is consistent with this finding as well.
On the other hand, there are many examples of cancelled debt being treated as a cash transfer.
Kniffen v. Commissioner, 39 T.C. 553 (1962) cites two cases where that interpretation was applied;
PLR 201016048 is another example.
Clearly, either analysis is possible depending on the circumstances. The only example anyone has posted to this thread that involves the circumstance of a creditor canceling the debt of a charity and claiming a deduction for it is
Story. In that case, the donation was analyzed to be for "the property advanced." While you have succeeded in showing that the matter is not fully settled, you don't have the preponderance of evidence on your side. Also, your attempts to defeat my reasoning have completely missed the mark. So, at this point, the cash argument looks better than the non-cash argument.