When "Loans" Are Taxed As Income

When your uncle loans you $5,000 to tide you over, is it taxable income?  Of course not.  What about when the bank loans you $100,000?  Again no.  Yet if a loan is forgiven, it suddenly is income then.

That’s cancellation of debt income, often shortened to COD income.  You got cash when you borrowed the money, and when you don’t have to repay it, that cash is no longer loan proceeds.  The tax code generally taxes you when you are relieved of paying back a debt, treating it like cash paid to you.  See 10 Things About COD Income.

This unpleasant rule might seem easy to ignore, except that when a loan is forgiven, you’ll generally receive a Form 1099-C reporting income to you—and telling the IRS.  If you receive one and disagree with the amount shown, write the lender requesting a corrected Form 1099-C showing the proper amount of canceled debt.  Don’t ignore Forms 1099.

In some cases discussed here, COD income isn’t taxed.  See also Short Sale Tax Problems.  If you believe the canceled debt isn’t income to you because you’re insolvent or for any other reason, you’ll need to address this on your return.  See Beware Each Form 1099! and The Truth About IRS Forms 1099.

As if all this isn’t frightening enough, can the IRS come along and claim that a “loan” you received—that is still outstanding and hasn’t been forgiven—isn’t a loan at all and was actually a sale?  In other words, can the IRS assert that some “loan” proceeds are really sales proceeds and therefore taxable?  Yes, and that’s exactly what happened to Jonathan Landow in Tax Court.

Landow took out a 90% loan against securities he put up as collateral.  The loan was non-recourse—meaning that Landow could not be sued personally if he defaulted.  Yet the securities were pledged as collateral.  In fact, the lender had the ability to sell off the securities in ways that were unusual for garden-variety loans.  And that’s just what the lender did, despite the fact that Landow later claimed he had no idea his securities would be sold.

Landow didn’t pay off any of the $13.5 million principal amount of the loan and didn’t report the “loan proceeds” as income.  The IRS claimed the loan transaction really wasn’t a loan at all and instead was a sale.  The Tax Court agreed with the IRS, treating this putative loan deal as a highly orchestrated transaction in which everyone knew the transaction would be documented as a loan but really amounted to a sale.
How real is the danger that will IRS will treat loans as sales?  In transactions like Landow’s, very real.  Landow’s deal was part of a litigated and controversial tax shelter that has produced a series of cases.  See also Shao v. Commissioner and Kurata v. Commissioner.  In that sense, the result in Landow’s case was no surprise.

How you structure the transaction is important, as is how the transaction actually plays out.  In general, courts look to indicators such as whether legal title passes, how the parties treat the transaction and the parties’ intent.

Perpetual Reflections. Friday 16th.

Tonight, I am part of a group Art Show at the Gallery of Hawaii Artists.  All the other artists in the show have put up amazing work.  If you get a chance, please check it out.  The show is up for a few months, but the opening reception is tonight at 7:00p.  Also, you don't wanna miss the installation Oliver is putting up for tonight's reception.
Aloha Kukui nut soup.
(This photo is one of the pieces I put up, it's a composite image of portraits of all the artists in the show)

Summer Family

Over the summer, I got to spend some fun times with great families.  Here is a quick mix of a few of the families, senior portraits, and maternity photos I squeezed in between weddings.

This family was so awesome.  Justin, the father, reminded me a lot of myself when I was a new father.  I knew they would be  a great family to shoot when they asked me if I could bring a mustache for the baby :)

Senior pics, class of 2012

My cousin Elijah just got married this year, and now they are on the fast track to starting a family.  I had the great privilege of shooting her maternity photos.  It's crazy because my cousin reminds me of what my mom looked like at her age.  Congrats cousin! (I still haven't seen the baby yet, but I'll make sure I get some photos when I do :)

A family/maternity session.  Great fun at Makapuu

Normally, I'd find a grey hair in my head after someone asks about doing a big family portrait session (3 different families at once in this case).  But to my absolute delight, these 3 families, all visiting from Cali, were so fun to shoot.   I felt like I was spending quality time with my own family.  Thanks guys!

Also my friends just added a handsome boy to their already amazing family.   Hopefully I'll be able to shoot all the updates through the years as the kids grow up.  Congrats Mahina and Nalu!

Crack on Ice

I have a new obesession.  These Ice Waffle cakes are absolutely mind blowing.  You can find them at a few 7-11's around.   They are the perfect after-beach snack.  The first time I had one, I was driving home from surfing, after I finished eating it, I turned my car around and drove 5 minutes back to the gas station to get another one.  so mean.

and Chris's wrinkled surf fingers

New Old Cams

I bought some old cameras recently.  Buying old cameras is a great way to stay enthused about photography.  Old cameras require a bit of thinking, a bit more hands on love, and improves your street cred with all the hipsters.
First, I'm really excited about my Nikonos II find.  Straight kung-fu metal underwater camera.  F2.5 is pretty decent.  I'm going to be the next worst surf photographer.  I just loaded a roll of Ilford 400 BW, but haven't shot it yet.

You have to take the camera apart into 3 separate pieces to get the film in there.  I like work

I also found a sweet pair of Polaroid SX-70 Land Cameras at the swap meet.  It's pretty rare to find them with the original flash accessories too.  

Leather case, bonus.  

Haha, Kodak 110 camera, I found in the 'bric-a-brac' section at Savers for $3.00.  Looks brand new, never used.  Gotta go grab some film online before it turns to dust.

One of my faves, probably cause I'll use this one the most.  I gotta replacement for my old Nikkormat and broken FG.  A working FG! yay.  I found this beauty (and the Nikonos) at my favorite local camera store Hawaii Photo Rental.  

This camera came with a 50mm 1.8, and the lens had some element separation problems.  I thought maybe the oil looking coating flaw would give the images a neat effect.  But after my first test roll, no bonus.  I got a roll of 3200 BW in there right now... that way I can take pictures of dirty people in parks at night.

here's an unedited image from my first test roll of fuji chrome.  I likes

go oldies

Issues of FLUX. new one, old one

I put some images in the recent issues of FLUX magazine.  This past summer, Art & Design issue, and recently the fall, Taboo issue.   It's been absolutely too good shooting for FLUX, it's a great magazine, so you should go buy and read one.  Look at the pictures.  

In the recent Taboo issue, I shot a few profile pictures, and some ADs..

Also, I put together an image for an AD for a group artshow that I am in... is that like shitting where you eat?.. I dunno.   But def check out the show at GOHA on Sept 16th.   yay

And my personal favorite image, is the AD we did for Manifest.   Fuckin' love it.

..some coverage of the Water writes event.

In the past Summer issue, they used my photo for the cover which is like having a self induced boner.

I shot the mens fashion editorial, because everyone knows, I like handsome dudes.

dat dat