Impact
Under federal income tax, a loan is not gross income to the borrower because the borrower has an obligation to repay the amount received and there is no accession to wealth. Along those same lines, the lender may not deduct the amount of the loan because the loan merely converts one asset (cash) into another asset (a promise of repayment). Furthermore, if the lender forgives or cancels the debt there may be income tax consequences for the borrower.
These general axioms directly affect many taxpayers because millions of individuals across the United States deal with loans and indebtedness. As a result, the principles discussed and analyzed in Zarin v. Commissioner are relevant to any taxpayer concerned with those issues. According to the decision, a cancellation of debt through settlement proceedings, no matter the amount of pre-settlement indebtedness, releases the taxpayer from the debt obligation without creating taxable income. "The excess of the original debt over the amount determined to have been due is disregarded for both loss and debt accounting purposes."
Read more about this topic: Zarin V. Commissioner
Famous quotes containing the word impact:
“Conquest is the missionary of valour, and the hard impact of military virtues beats meanness out of the world.”
—Walter Bagehot (1826–1877)
“Too many existing classrooms for young children have this overriding goal: To get the children ready for first grade. This goal is unworthy. It is hurtful. This goal has had the most distorting impact on five-year-olds. It causes kindergartens to be merely the handmaidens of first grade.... Kindergarten teachers cannot look at their own children and plan for their present needs as five-year-olds.”
—James L. Hymes, Jr. (20th century)
“One can describe a landscape in many different words and sentences, but one would not normally cut up a picture of a landscape and rearrange it in different patterns in order to describe it in different ways. Because a photograph is not composed of discrete units strung out in a linear row of meaningful pieces, we do not understand it by looking at one element after another in a set sequence. The photograph is understood in one act of seeing; it is perceived in a gestalt.”
—Joshua Meyrowitz, U.S. educator, media critic. “The Blurring of Public and Private Behaviors,” No Sense of Place: The Impact of Electronic Media on Social Behavior, Oxford University Press (1985)