A difficult gift tax question

I can only think of two ways to do that. First would be to have your son file bankruptcy and discharge his debt to you.

The other would be to allow the statute of limitations of expire, in which case the debt would become worthless and your son would have to recognize taxable income in the amount of the uncollectable debt. Even in this case there is a chance the IRS could come back and say that it was planned and that it was, as a result, a taxable gift.

As they say, it's not illegal unless you get caught.

If, at an arm's-length transaction, it is agreed that the value of the debt has decreased, you could sell it to him for that value; however, he would then have cancellation-of-debt income for the difference (unless he was insolvent).

If the business exists, but just isn't profitable enough to repay the loan, you could convert the loan into stock without tax consequences.

Seth

Not legitimately, as far as I can tell. You either have to attempt to enforce the debt - and keep in mind that IF EXAMINED the IRS will insist that enforcement be real whenever an interfamily issue is involved - then write it off as a bad loan OR treat it as a gift.

It might not be as bad as you think, though -

Retain, out of YOUR POCKET, an independent accountant who can assess your son's solvency at whatever level you made the loan. If you loaned his company the money, have the company assessed. If you loaned the money to him personally have a personal financial statement done. Expect to pay for this.

AFTER you get this assessment meet with an attorney to explore the likelihood of actually collecting from your son. Discuss suing him and what his possible defenses might be - include the possibility that your son could declare bankruptcy.

If you can document that he is insolvent and that should you pursue the debt he could discharge it in bankruptcy, you MIGHT (BIG MIGHT) be able to slide past the IRS by claiming it as a bad debt. This would also support his NOT picking up as income, since he'd be insolvent at the time of the discharge.

This is the kind of help and assistance tax professionals provide. We don't just prepare tax returns from January to April - we help clients solve real life problems every day. If you aren't working with a local tax pro you're short changing yourself!

Good luck, Gene E. Utterback, EA, RFC, ABA

If you loaned the money to the company, then the company can get declare bankruptcy. Now if you loaned the money to your son to give to the company, that's effectively a loan to the company -- but I have no idea if that argument really works. If the company is a sole proprietorship, then your son has to declare bankruptcy, but if it's a corporation or LLC then only the company needs to.

Is that $100 million? If yes, get professional help fast!

The way this should have been done -- you received stock in return for your 100M capital contribution. Then not only is your son of the hook, but you get a capital loss.

Actually, you repeated the question in two different threads last December, so this makes the third time. In both earlier cases, you never once replied back or interacted through the newsgroup with any of the volunteers who graciously donated their time to try to assist you.

Guess what? It's still the same people here. If the previous answers weren't "satisfactory" (although how anyone would know what part of the answers you weren't satisfied by remains a mystery), what makes you think it will be different this time?

Incidentally, in your first post, you stated an amount of $100K, now it's $100M, so which is it?

Please stop wasting your time and that of others who participate in this newsgroup. Your purchase price cheerfully refunded!

-Mark Bole

Only individuals can get a discharge in bankruptcy. If a corporation or LLC files for bankruptcy, the court will take control of the company's assets and pay creditors. But the company does not get a discharge, and continues, legally, to owe whatever debts it had.