Okay.... I posted this question before, but need some urgent help!
I sold my business and some of the proceeds were put into an escrow account to be available to the purchaser for legal fees in a pending lawsuit against the business; ie, the lawsuit is my problem, not theirs. The funds are held by an investment manager and invested in equities. I pay income tax on the income and get it at the end, if there is any money left in the escrow account at the end.
My lawyer and accountant both say there is imputed interest on the escrow account because there is ALWAYS imputed interest on an escrow account when no actual interest is paid by the buyer to the seller.
When I posted before several people here told me that I was getting a fair market return on my money, and that was equivalent to, so there was no imputed interest. The buyer wasn't getting anything on the money, so why would he pay interest?
My lawyer and accountant say that makes good sense, but good sense doesn't matter. There is ALWAYS imputed interest on an escrow account regardless of whether is it sensible or not; they have never heard of an exception.
So, has anyone heard of an exception? My return is due next Thursday, and I have to go one way or another. Thanks.