Regarding the "ownership" problem...
Jeff-Ohio wrote:I don’t have a special definition of lend, you do. You’re the one saying the real estate is being lent.
Ok, let's talk about my definition. It's from post #84:
to give for temporary use on condition that the same or its equivalent be returned. You claim that this definition cannot be applied to real estate and it also cannot be applied to cash; I claim that it can.
The reason I called your definition of lend "special" is that the definition I'm using is the top definition provided on merriam-webster.com. Presumably, that should make it prominent or wide-ranging somehow in its application; in other words, we should list what it
can't be applied to as
exceptions rather than trying to enumerate all the many things it
can be applied to.
Do you agree that the top definition of "lend" is generally applicable? If not, why not, and what is the true "general" definition of "lend" in your opinion? If you do agree, then what are the exceptions to the definition and why?
The lessee doesn’t have the ability to exhaust the entirety of the real estate resource, because he wasn’t granted all the rights to exhaust.
That's true, but it's also irrelevant. We weren't talking about real estate in that part of the post, we were talking about cash and other fungible resources.
You told me that a claim to something does not imply ownership over that thing. This, of course, begs the question: what is ownership?
I'm sure you would agree, as a starting point, that to fully own something implies that I have the exclusive right to do as I please with it and to prohibit someone else from taking any action towards it. But what about situations where my rights are limited? Suppose I gradually divest myself of all of the "strands" included in my "bundle" of property rights, as it was put in Andrus v. Allard, 444 U.S. 51 (1979). At what point have I lost ownership? Which is the crucial strand that tilts the balance?
I say it's my right to reclaim the asset. What's done while the asset is out of my possession doesn't matter. The asset may be demolished and reconstituted a hundred times over, but by the terms of my agreement I still look forward to a resumption of full rights thereto, just as it was before. What I granted was a mere
temporary use on condition that the same or its equivalent be returned, not ownership.
So no, it's not a
claim to something that implies ownership. It's the right to
reclaim something already owned that maintains an ownership interest, however limited, while that thing is not physically possessed.
You say
when you give the cash, you grant all rights to it, just as if
the lender is selling the cash to the borrower on an installment basis. So, perhaps you agree with me that a right to reclaim implies ownership, and you simply disagree about whether the cash lent out is the same "thing" as the cash returned. Is that where we stand?
And either way, what is your reason why we should accept your version of the situation over mine?
But anyways, all of that notwithstanding...
Nilodop wrote:It's not the debt cancellation that's loose. It's the use of that phrase to describe what happened in the facts of the several cases listed that's loose. They were exchanges.
I see...so when there's a debt cancellation in exchange for something, that counts as a "loose" usage of the phrase "debt cancellation"? And I suppose that means it's really not a debt cancellation in substance, but rather a deemed cash transfer?
You did agree that payment of a monetary amount can be done by way of debt discharge (provided something is received in return), so I guess that's what you were saying before too.
What about you, Jeff-Ohio? You didn't answer my question about using debt discharge as a payment medium. You seem to agree that I can pay someone that way when there's an exchange involved. Does that extend to an exchange of money for services, such as when I pay a salary? If so, should the salary count as cash received in the current year, or do I have to apply special rules related to COD income and/or payments in kind?
Now let's say I have some cash I want to give to someone, but there's no exchange. It could be a donation, a bequest, maybe even a distribution of profits. This person happens to owe me money in a bona fide lending arrangement. Is there a tax principle that prevents me from applying the cash against the loan balance and treating it as if I had actually paid the cash to them? Must COD treatment apply in these instances?
Jeff-Ohio wrote:In the case of the RR, I said a judge would put 2 and 2 together.
Yes, and that had the potential to be a decent argument even though your source was only one half of the equation. That was my point: it's reasonable for us to draw conclusions involving sources that don't directly address the issue of contest.
It could very well be monetary indeed…but just in a prior period. That’s why the COD rules don’t go so far as to say, “The asset you got in the prior period IS the exact thing you are taxed on now.”
We weren't discussing "COD income" in that part of the post, apparently, according to Nilodop, because
the phrase "cancellation of indebtedness" is used loosely in the examples at issue. I gather this means that none of the COD rules apply, including the above.
So what we've got in these examples is "the equivalent of cash," which you agree could very well be monetary, considered to be actually paid in the current period under a deemed transfer via debt discharge. The sole point of contention seems to be whether or not the same type of transfer can happen via gift. Right?
But the judge does tell us which one it is immediately before he says that.
No he didn’t.
First he said
cancellation of his debt to the corporation was the equivalent of cash, then after that he said the cancellation
constituted 'other property or money' within the meaning of section 112(c) (1) of the Revenue Act of 1928. Your claim is that because he said the second thing, he didn't also say the first thing. Sorry, but that's a goofy claim.
So, when you point out that the debt cancellation was "the equivalent of cash," it sounds to me like you're saying I'm right.
Only if you’re saying “the equivalent of cash” IS cash…which I don’t think you are. Again, current year COD income arises from taking the debt off your books.
Again, I don't think we're really talking about COD income in a "strict" sense. It's Nilodop's "loose" version which isn't really COD income, meaning section 108 doesn't apply.
I propose it is the same dividing line that exists under current law. If constructive cash transactions can adequately mirror reality, fine by me.
So are you saying that "mirroring reality" is the dividing line? In other words, if considering a debt "satisfied," resulting in cash treatment, mirrors reality, then that's how it should be treated? And if that arrangement doesn't mirror reality, the debt should be "forgiven," resulting in non-cash treatment?
And why does GAAP matter in the slightest for tax purposes?
Why wouldn’t it? This isn’t like some technical thing where we might have a tax/book difference. It’s more like a real basic question: Is the transaction cash or non-cash?
Ok, I concede this point. We want to know if something can be called "cash, check, or other monetary gift." The only direct source, Reg. § 1.170A-15(b)(1), provides a non-exhaustive list. So, we should fill in the blanks using concepts from outside the Tax Code, such as from accounting or economics.
In a GAAP financial statement, a stock repurchase via debt cancellation is considered non-cash. So that's a point against me. But we still have all these judges saying what we really have is a series of two deemed "cash equivalent" transfers. I'll bet those don't show up on the statement of cash flows...and maybe that's because GAAP is a bit more concerned with form over substance than tax law?
So, it still seems like I come out slightly ahead here. And further, I think I'll follow your lead and look outside the Tax Code for the meaning of "cash" and "monetary." I wonder what someone who prioritizes substance over form would say...