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James_Miller comments on Things I Wish They'd Taught Me When I Was Younger: Why Money Is Awesome - Less Wrong
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Comments (234)
Don't they then get a call from the IRS saying they have to pay taxes on this gift?
That sounds like it might be a frequently asked question! Let's check Rolling Jubilee's FAQ... yup!
Point being, if you can think of a difficulty in the solution of a problem in two seconds, then the people actually working to solve the problem have almost certainly either anticipated or run into the difficulty and have dealt with it.
Point being, it's not up to the Rolling Jubilee to decide. It's up to the IRS to decide.
If the Rolling Jubilee wants to be serious about it, it needs to get a Determination Letter from the IRS stating that yes, IRS will treat these debt cancellations as tax-free gifts.
Yup. Have a look at that interview with the top tax lawyer to see how that will likely play out. (Short version: 1. Medical debt is likely much easier to forgive tax-free than mortgage debt. 2. The debt forgiveness is currently so small that it will probably be lost in the shuffle without the IRS wanting to devote resources to making a determination.)
The point of my comment was really that if James_Miller had posed the question out of genuine curiosity instead of as a rhetorical side-swipe, he could have found the answer.
Fantastic! Now I can escape the tax liability on my paycheck by having my employer pay my debts rather than directly paying me a salary. Or, rather than contribute to MIRI and have some of this money go to salaries which are taxed I could instead payoff some of the debt of MIRI employees.
Sorry for the sarcasm, but for someone who has studied a bit of U.S. tax law it's obvious that the IRS can't allow Person A to payoff the debt of Person B without there being any tax consequences. Doing so would just create too massive a loophole for tax avoidance.
I think Rolling Jubilee has a better case for forgiving debt as an "exempt purpose" than you're giving them credit for. In any event, EY noted recently (on Facebook, possibly?) that the legal system is made of people, not words. An obvious cheat won't cut it.
(I can hardly complain about the sarcasm, having dished some snark of my own. It's all good.)
It seems that (1) in practice, so far they apparently don't, but (2) no one is quite sure whether they should. (Or, rather, a few people are sure they shouldn't, a few more are sure they should, and lots of people aren't sure.)