Hypothetical Tax Question - Is this legal?

[stinkypete]

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sounds like you guys are trying to scam the bank on giving you a loan for more than the value of the car...banks no how to assess the value of the car and likely wont give him the loan...

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this could be true if they had any intention of getting a bank loan

[Scorpion Man]

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Basically the reason I posted this was because I have a friend who owes me more money than he is able to pay, and I was trying to come up with a way to solve that by shifting my tax burden onto him, if I can do so legally.

I think I have come up with a better idea than this, since the previous idea needed quite a few other things to work, where this seems pretty straightforward. I make all of my income from gambling, and I do not file as a professional, so I just report my gambling winnings and losses and pay taxes accordingly. Now what if I make some ludicrous bets with my friend in which I am nearly guaranteed to lose $12,000, such as giving him 12000 - 1 odds on a coinflip. It's still gambling, so if I lose $12,000 I should be able to report it as gambling losses which I can use a deduction on my taxes. He then gives me a gift of $12,000 (which I believe is the maximum allowed exclusion prior to the gift tax). Then he will pay taxes on the $12,000 in gambling winnings, but because he is in a much lower tax bracket than I am, it will amount to a lot less in taxes.

Now I expect there to be some problem with this, because it just seems too easy. Would the fact that the bet is only taking place on the condition that the friend gift the money back to me somehow change the way gifts and gambling losses work on taxes? Is there some income based limit besides the $12,000 exclusion that would make the gift taxable? Basically, I am just simply wondering... is this legal?

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any time you have to think this hard about tax stuff you can be sure it's not ok.

you dont have to do any of this. formalize the loan. get him to sign a paper with terms -- interest rate and term (when he is supposed to pay it back). date it, if possible, on the date of the original loan. have him sign it. write him a few letters telling him he is behind and you want your money back.

this is enough to establish that a loan was made, it had terms, it was NOT A GIFT (This is what the IRS can allege) and that you have made sufficient attempts to collect.

You can then write off the debt.

This provides you with a short term capital loss (which is very valuable if you investment income). I do not believe it works against ordinary income.

He will also have income in the amount of the debt you have forgiven.

Read here:

http://finance.comcast.net/personalf...ily/loanfamily

[Shanemex]

Thanks, that's probably the logical thing to do.