loan and income tax question

[Unabridged]

not specifically about poker, but could be related.

what if instead of getting paid a salary of $100k, your company just gave you a $100k loan each year? or if instead of someone giving you a gift of $1 million, they give you a million dollar loan? it would be at the current interest rate(the irs recently said that for any loans at below market rate, the difference between the interest paid and the interest owed at the market rate is considered income for the borrower), but the minimum monthly payment would be $1 and you would have no time limit to pay it back(uncallable) and no ceiling on your credit limit. could this be counted as taxable income?

[MiltonFriedman]

LOL, you really think no small business owner ever thought of that ?

[Unabridged]

[ QUOTE ]
LOL, you really think no small business owner ever thought of that ?

[/ QUOTE ]

no. i just want to see where the irs has that loophole closed. the practice of companies giving out large interest free loans to stockholders and executives just got closed this year, so its possible something along this line could still be open.

[DING-DONG YO]

Substance over form much?

[Unabridged]

[ QUOTE ]
Substance over form much?

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[img]/images/graemlins/confused.gif[/img]

[ChipLeeder]

As long as you can go to the unrelated general public and offer similar lone deals you are fine...where can I sign up?

[EMc]

[ QUOTE ]
Substance over form much?

[/ QUOTE ]

Imputed Income FTW?

[ChexNFX]

Been there, done that.

[Unabridged]

while this may seem like a joke, according to a few articles i found this method of removing tax liability (called "lend and forget") was in heavy use in the UK as of 2006

[broiler]

The IRS calls this practice disguised wages and they really don't like it. If a company is suspected of this, the IRS asks to see loan documentation and a repayment schedule. The interest rate must be stated in some manner and the terms must be reasonable based on what another lender would offer. Reasonable is extremely subjective, but it is obvious that no lender would offer a person with minimal wages a low interest rate loan without collateral.

This scam was being run by many public companies over the past couple of years. Companies were paying executives $1 million (maximum deductible for taxes) and then loaning out a substantial multiple of that compensation (20-30x or more). The company would then forgive the loan when the executive left. The benefit was that the executive would get to defer tax on the income until they left the company and the company got to deduct the bad debt and avoid payroll taxes.

The IRS position on this was that there was no business purpose for the corporation to make the loan. Therefore, the company can't deduct the bad debt expense and it is treated as wages to the executive for all of the years in which loans were made. Of course, the IRS also wants all of their back payroll taxes and they don't mess around or settle easily on those taxes. Tyco is one of the headline companies currently under audit for this practice. Many other companies are known to do this to the point where the SEC is involved due to improper disclosure of related party transactions.