Tax evasion: good or evil?

Post Reply New Topic

Location and some other things we liked, and the overall re-model plan we had at the time would have eventually made it worth quite a bit more.



What we have actually done is to convey the house to a "holding company" that has assumed our debt and is now attempting to trigger the "due on sale" clause of the mortgage by not paying anything ... and now my wife and I are simply house sitters waiting to be told to move after a short sale has taken place. I have no idea how all of this will play out, but the holding company has said it will be responsible for everything and my wife and I should *not* receive a 1099-C.

the IRS came after me a few years ago and it was serious business. those suckers dont mess around they can take everything you own exept for canned food and your childrens school books. i finally paid them off but it was one scary ordeal. also i just got back my tax info this last year and i made $11,004 for 2009.

i dont know if i have to file

I would file if you have to or not, just to eventually close the statue of limitations on the year. And to keep from getting any letters saying you didn't file and then having to explain yourself.

yeah, i need to file for last year though too. if they wanna come after me again i'll just say im ret*d and cant work with numbers and i'll file as soon as i can

Nobody's denying that point.

Just because reality = corrupt system doesn't me we should bow down and obey it blindly.

Resistance is not futile. I exploit every tax loophole the IRS gives me.

Okay, some flaws with your (or the IRS') reasoning.

1. I can see where are going with "debt reduction." If I got a job that agreed to pay X% of my student loan principal off each year, I'd have to make sure that such a benefit was documented to me as "income" and that the employer did their share of the tax burden when cutting my check. This way I don't get burned when April 15 comes along.

HOWEVER....

2. There is a hot topic with "debt forgiveness." The IRS likewise sees this as taxable for about the same reasons, but "forgiveness" means a debt goes away and that is that. If I give you $200K with the requirement that you repay it then decide to just not require you to repay it 10 years later, it's not income. I released you from your financial obligation to me. THAT IS MY CHOICE. For the IRS to treat it as income is contrary to what "forgiveness" means.

We see this right now with the Income-Contingent and Income-Bases repayment plans with student loans. Right now, ICR and IBR have a 25-year payoff period and what is not paid off in 25 years is "forgiven." The IRS considers that amount taxable, and the bankruptcy courts have already held that for someone in financial straits, such a tax duty (which is not dischargable by bankruptcy) constitutes an "undue hardship" which justifies bankruptcy relief even though student loans are generally exempt from bankruptcy relief.

Ironically, the IBR plan has a 10-year loan forgiveness benefit for anyone working in a government agency (federal, state or local). After 10 years in that job your loan balance is forgiven WITH NO TAX OBLIGATION. As you can guess, the contradiction here is getting a lot of attention.

The point for the ICR plan is so someone who borrowed for an education could manage to keep payments in good standing even if all they secured was inadequate paying employment. The "forgiveness" was intended to put an end to the loan after a fair repayment period had passed. The IRS is the one that wants to tax the forgiven amount, not the government making the loan. There is work going on to make all "loan forgiveness" practices exempt from taxation.

BECAUSE....

3. You borrow money for college so that you can make more money. You expect that you will be able to pay off your loans in the allotted time. ICR was created for those who fell through the cracks of the economy and didn't find good-paying jobs. That the IRS taxes what's "forgiven" is really a slap in the face. It is a more sound economic practice to pay next to nothing on your loans and secretly save up to pay the tax liability when the loan is forgiven.

My student loans rack up over $300 a month in interest alone. If my student loans were forgiven tomorrow, I'd have something like $25,000 in taxes to pay, but over 20 years of just paying the interest, I'd shell out $72,000 in interest payments (which would be just about 3/4 of the principal). If I just save $300 in a safe place each month, I'd have the tax burden met in 7 years of saving.

Taxable debt forgiveness does not usually include accrued interest that was never taken as a tax deduction. There is no "basis" in it. The law is looking for a cash equivalent here. My experience with debt forgiveness hasn't been in the student loan area, but in real estate and commercial transactions. In those situations, there is a real cash equivalent, a real and tangible benefit, and someone on the flip side looking to take a tax deduction for what they lost. In that world, the taxation of debt forgiveness reflects an economic reality and closes a loophole that would be wildly exploited if available.