Premise: I own stock in an S corp for many years. A stockholder/partner in the same S corp lends me money and I give my stock to that partner as collateral. I have 6 month term to either pay back loan or give up stock . 6 months goes by & I give up stock in lieu of paying back the money. Do I pay long term capital gains on stock as if it was sold or do I suffer with short term tax gain as a debt forgiven. (Not being an accountant I am only assuming that a debt not paid and than forgiven is taxed as short term gain). (Of course, my debt is not really forgiven as I gave up valuable stock!) Forgive my ignorance on this as I am not an accountant.
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