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try and keep up
Aug. 11th, 2004 01:02 amOK, after telling her not to because it was going to cause more grief than it was worth, my ex goes ahead and loans the contractor 15 grand out of the insurance settlement so he can finish the house. On the one hand, I totally understand her wanting the house to get finished so she and the kids can move back in. On the other hand, what he did was totally unethical, put him in breach of the contract, and because he did this with out my knowledge, consent, and participation, means he's also defrauded me too. After all, he signed a contract to rebuild the house for a certain sum, payable in three installments, the last of which to be paid upon completion of the job. Having now taken 15 grand over and above that amount opens a can of worms I'd rather not deal with.
You see this is the US of A and the Congress and the IRS have decided that there shouldn't be interest-free loans anymore, except in special circumstances. (That sound you heard as you read that sentance was Alexander Hamilton rolling in his grave.) As my luck would have it, this is most definitely not one of them.
So... off to the IRS web site. Search on "personal loan". Ah, page 6 of publication 505 talks about Below-Market Loans. One of the examples is "...loan... between an independant contractor and a person form whome the contractor provides services". Bingo! What's this? Foregone interest? Hmmm... it appears that I have to declare as income the difference between the interest charged and the Applicable Federal Rate if the interest rate on the loan was less.
Yes, you read that right. I have to declare as income interest I didn't collect. Lovely. So, reading down, we find "The lender must report the annual part of the OID (original issue discount) as income". I don't even want to know what OID really is, so back to the interest rate. It says that Applicable Federal Rates are published monthy in the Internal Revenue Bulletin. Ok, back to IRS site. Hit the site map. No mention of Bulletin. Ok, hit google. There is it. (irs.gov/irb--go figure).
The August 9 bulletin has the interest rate tables. Except that there are 5. Tables 3-5 are special use tables and immediately dismissable. Tables 1 and 2 are very different, and the labeling is not a big help. The text states that table 1 is for purposes of Internal Revenue Code section 1274, and table 2 for section 1288. Ok, off to the Cornell web site to peruse the IRS code.
Section 1274 covers "debt instruments". Short-Term obligations are debts with terms of not over 3 years. Bingo. I think. So gotta checkout section 1288, which covers tax-exempt obligations. Sub-section (b), paragraph (3)refers to Section 1283 for the definition on who short-term obligations apply to this section (1288).
Soooo... surf the index to section 1283. Cool! Sub-section (a), paragraph (1), part (B) says that "short-term obligations shall not include any tax exempt obligations". This validates that section 1274 is the applicable one in my case, which means I use table 1 from the August 9 IRB, which gives an annual interest rate of... (drumroll please)... 2.37%.
Now, all I have to do is get the contractor to give me a copy of the (supposed) promisory note and see what terms and interest rates were specified. I'm thinking I'll take the silly thing to my attorney, show him all the documents I printed from the IRS site (and yeah, I printed all that crap, but only the pertinate pages of the bulletins and publications, so it's only about 20 pages total) and have him rewrite the thing so the note is in compliance with the IRS code and do it as an extension of the original contract--which is what ought to have been done in the first place had either the contractor or my ex cared enough to be above-the-board about it.
Damn, I need a drink.
You see this is the US of A and the Congress and the IRS have decided that there shouldn't be interest-free loans anymore, except in special circumstances. (That sound you heard as you read that sentance was Alexander Hamilton rolling in his grave.) As my luck would have it, this is most definitely not one of them.
So... off to the IRS web site. Search on "personal loan". Ah, page 6 of publication 505 talks about Below-Market Loans. One of the examples is "...loan... between an independant contractor and a person form whome the contractor provides services". Bingo! What's this? Foregone interest? Hmmm... it appears that I have to declare as income the difference between the interest charged and the Applicable Federal Rate if the interest rate on the loan was less.
Yes, you read that right. I have to declare as income interest I didn't collect. Lovely. So, reading down, we find "The lender must report the annual part of the OID (original issue discount) as income". I don't even want to know what OID really is, so back to the interest rate. It says that Applicable Federal Rates are published monthy in the Internal Revenue Bulletin. Ok, back to IRS site. Hit the site map. No mention of Bulletin. Ok, hit google. There is it. (irs.gov/irb--go figure).
The August 9 bulletin has the interest rate tables. Except that there are 5. Tables 3-5 are special use tables and immediately dismissable. Tables 1 and 2 are very different, and the labeling is not a big help. The text states that table 1 is for purposes of Internal Revenue Code section 1274, and table 2 for section 1288. Ok, off to the Cornell web site to peruse the IRS code.
Section 1274 covers "debt instruments". Short-Term obligations are debts with terms of not over 3 years. Bingo. I think. So gotta checkout section 1288, which covers tax-exempt obligations. Sub-section (b), paragraph (3)refers to Section 1283 for the definition on who short-term obligations apply to this section (1288).
Soooo... surf the index to section 1283. Cool! Sub-section (a), paragraph (1), part (B) says that "short-term obligations shall not include any tax exempt obligations". This validates that section 1274 is the applicable one in my case, which means I use table 1 from the August 9 IRB, which gives an annual interest rate of... (drumroll please)... 2.37%.
Now, all I have to do is get the contractor to give me a copy of the (supposed) promisory note and see what terms and interest rates were specified. I'm thinking I'll take the silly thing to my attorney, show him all the documents I printed from the IRS site (and yeah, I printed all that crap, but only the pertinate pages of the bulletins and publications, so it's only about 20 pages total) and have him rewrite the thing so the note is in compliance with the IRS code and do it as an extension of the original contract--which is what ought to have been done in the first place had either the contractor or my ex cared enough to be above-the-board about it.
Damn, I need a drink.
