Posted by Rich-CA on June 01, 2007 at 13:31:01:
I have another approach to explain why he DID have a gain.
- All money that becomes yours, except as allowed by law, is taxable as income or capital gains or whatever.
- When you borrow money, you receive the money (to buy a house, boat, RV or lawn furniture or whatever), but the money is not yours - you have to give it back to its owner.
- When the owner of the money YOU ALREADY HAVE and may have already used (such as buying a house), tells you that you do not have to give it back, the money slides from his column (his money) to your column (your money). That’s when it becomes taxed.
- The fact that you may have received use of the money many years ago is not relevant. Its when ownership of the money changes that it is counted as income. The fact the cash may already be long gone is also not relevant, because the cash did arrive at some point. But once you do not have to pay it back, then the ownership becomes yours and its income.
There are only two ways to discharge this. (1) pay back the money that was borrowed so that it does not become “yours” or (2) bankruptcy (not a complete solution any more).
The IRS is very unlikely to budge on this as it is well established that any money you receive ownership of is taxable. The only issue is how its taxed and when its taxed.