[nineinchal]

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At some point in time, the nature of the loans became a gift, even if there were legit notes. The son can never hope to repay that money.

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So if this is true, the son does not have to pay income taxes. You don't pay income taxes on gifts you receive.

-Tom

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The IRS does not agree with you. The son pays or dad pays for him. Someone pays.

NIN,

I have a hard time not seeing tax fraud here. The IRS is very harsh on below market loans and as you point out, it is very transparent. Maybe there's some corporation / partnership shenanigans here but I have a hard time not seeing fraud.

J

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The notes are at market and at the published IRS rates. What troubles me here is that there were no repayments of any of the loans. Now for the estate planning, they are intending to make this all go away with a journal entry by rolling these loans into the next trust, making the son sell some of his shares in the famliy biz, and everybody laughs all the way to the casino. So in substance, the son got all this money to use as he pleased, without ever repaying a dime, recognizing no income from the loans, adn paying no interest in the course of thirty years.


It seems the IRS has to re-write the rules covering borrowing against trust funds in this type of transaction. I am trying to cite a specific point in the tax laws about this. There has got to be some poker playing tax attorney here that can clarify this for me.

Thanks,

Nineinchal CPA