Imputed interest on installment sales

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Subject Author Date Imputed interest on installment sales kevin 10-07-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-07-2009  Re: Imputed interest on installment sales kevin 10-07-2009  Re: Imputed interest on installment sales Dick Adams 10-07-2009  Re: Imputed interest on installment sales Drew Edmundson 10-07-2009  Re: Imputed interest on installment sales kevin 10-07-2009  Re: Imputed interest on installment sales Drew Edmundson 10-09-2009  Re: Imputed interest on installment sales Wallace 10-07-2009  Re: Imputed interest on installment sales Drew Edmundson 10-09-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-09-2009  Re: Imputed interest on installment sales Drew Edmundson 10-13-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-07-2009  Re: Imputed interest on installment sales removeps-groups@yahoo.com 10-08-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-08-2009  Re: Imputed interest on installment sales Alan 10-07-2009  Re: Imputed interest on installment sales Dick Adams 10-07-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-07-2009  Re: Imputed interest on installment sales Dick Adams 10-13-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-13-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-07-2009  Re: Imputed interest on installment sales kevin 10-07-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-07-2009  Re: Imputed interest on installment sales kevin 10-09-2009  Re: Imputed interest on installment sales Mark Bole 10-09-2009  Re: Imputed interest on installment sales kevin 10-09-2009  Re: Imputed interest on installment sales Drew Edmundson 10-09-2009  Re: Imputed interest on installment sales kevin 10-09-2009  Re: Imputed interest on installment sales Drew Edmundson 10-13-2009  Re: Imputed interest on installment sales kevin 10-13-2009  Re: Imputed interest on installment sales Drew Edmundson 10-13-2009  Re: Imputed interest on installment sales Wallace 10-13-2009  Re: Imputed interest on installment sales Alan 10-13-2009  Re: Imputed interest on installment sales kevin 10-14-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-14-2009  Re: Imputed interest on installment sales kevin 10-14-2009  Re: Imputed interest on installment sales Drew Edmundson 10-14-2009  Re: Imputed interest on installment sales Wallace 10-14-2009  Re: Imputed interest on installment sales kevin 10-14-2009  Re: Imputed interest on installment sales Seth 10-14-2009  Re: Imputed interest on installment sales kevin 10-14-2009  Re: Imputed interest on installment sales Wallace 10-09-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-09-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-09-2009  Re: Imputed interest on installment sales kevin 10-09-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-09-2009  Re: Imputed interest on installment sales kevin 10-09-2009  Re: Imputed interest on installment sales Seth 10-14-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-14-2009  Re: Imputed interest on installment sales Seth 10-08-2009  Re: Imputed interest on installment sales Mark Bole 10-08-2009  Re: Imputed interest on installment sales kevin 10-08-2009  Re: Imputed interest on installment sales Stuart A. Bronstein 10-08-2009  Re: Imputed interest on installment sales Mark Bole 10-08-2009  Re: Imputed interest on installment sales Drew Edmundson 10-09-2009
Posted by kevin on October 7, 2009, 3:15 pm Please log in for more thread options Okay.... I posted this question before, but need some urgent help! I sold my business and some of the proceeds were put into an escrow account to be available to the purchaser for legal fees in a pending lawsuit against the business; ie, the lawsuit is my problem, not theirs. The funds are held by an investment manager and invested in equities. I pay income tax on the income and get it at the end, if there is any money left in the escrow account at the end. My lawyer and accountant both say there is imputed interest on the escrow account because there is ALWAYS imputed interest on an escrow account when no actual interest is paid by the buyer to the seller. When I posted before several people here told me that I was getting a fair market return on my money, and that was equivalent to, so there was no imputed interest. The buyer wasn't getting anything on the money, so why would he pay interest? My lawyer and accountant say that makes good sense, but good sense doesn't matter. There is ALWAYS imputed interest on an escrow account regardless of whether is it sensible or not; they have never heard of an exception. So, has anyone heard of an exception? My return is due next Thursday, and I have to go one way or another. Thanks. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Stuart A. Bronstein on October 7, 2009, 3:36 pm Please log in for more thread options > I sold my business and some of the proceeds were put into an > escrow account to be available to the purchaser for legal fees > in a pending lawsuit against the business; ie, the lawsuit is my > problem, not theirs. The funds are held by an investment > manager and invested in equities. I pay income tax on the > income and get it at the end, if there is any money left in the > escrow account at the end. > > My lawyer and accountant both say there is imputed interest on > the escrow account because there is ALWAYS imputed interest on > an escrow account when no actual interest is paid by the buyer > to the seller. Except for a couple of things. First, the money is yours. It's not a loan. If you put your own money in an escrow account for yourself, there is no imputed interest. There is no tax effect of paying money to yourself. Second, there is actual interest that you are paying tax on. So no additional interest is necessary. > When I posted before several people here told me that I was > getting a fair market return on my money, and that was > equivalent to, so there was no imputed interest. The buyer > wasn't getting anything on the money, so why would he pay > interest? Exactly. > My lawyer and accountant say that makes good sense, but good > sense doesn't matter. There is ALWAYS imputed interest on an > escrow account regardless of whether is it sensible or not; they > have never heard of an exception. There may be some facts we're not aware of. But based on the story you've told, your lawyer and accountant are just wrong. -- Stu http://downtoearthlawyer.com -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by kevin on October 7, 2009, 4:29 pm Please log in for more thread options > >> I sold my business and some of the proceeds were put into an >> escrow account to be available to the purchaser for legal fees >> in a pending lawsuit against the business; ie, the lawsuit is my >> problem, not theirs. The funds are held by an investment >> manager and invested in equities. I pay income tax on the >> income and get it at the end, if there is any money left in the >> escrow account at the end. >> >> My lawyer and accountant both say there is imputed interest on >> the escrow account because there is ALWAYS imputed interest on >> an escrow account when no actual interest is paid by the buyer >> to the seller. > > Except for a couple of things. First, the money is yours. It's > not a loan. If you put your own money in an escrow account for > yourself, there is no imputed interest. There is no tax effect of > paying money to yourself. > > Second, there is actual interest that you are paying tax on. So no > additional interest is necessary. > >> When I posted before several people here told me that I was >> getting a fair market return on my money, and that was >> equivalent to, so there was no imputed interest. The buyer >> wasn't getting anything on the money, so why would he pay >> interest? > > Exactly. > >> My lawyer and accountant say that makes good sense, but good >> sense doesn't matter. There is ALWAYS imputed interest on an >> escrow account regardless of whether is it sensible or not; they >> have never heard of an exception. > > There may be some facts we're not aware of. But based on the story > you've told, your lawyer and accountant are just wrong. But can you cite a code or a case where an escrow account didn't pay either imputed interest or actual interest? They acknowledge this should be an exception, but can't see the IRS treating it as such since there are NO exceptions. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Dick Adams on October 7, 2009, 5:06 pm Please log in for more thread options >>> I sold my business and some of the proceeds were put into an >>> escrow account to be available to the purchaser for legal fees >>> in a pending lawsuit against the business; ie, the lawsuit is my >>> problem, not theirs. The funds are held by an investment >>> manager and invested in equities. I pay income tax on the >>> income and get it at the end, if there is any money left in the >>> escrow account at the end. >>> >>> My lawyer and accountant both say there is imputed interest on >>> the escrow account because there is ALWAYS imputed interest on >>> an escrow account when no actual interest is paid by the buyer >>> to the seller. >> Except for a couple of things. First, the money is yours. It's >> not a loan. If you put your own money in an escrow account for >> yourself, there is no imputed interest. There is no tax effect of >> paying money to yourself. >> >> Second, there is actual interest that you are paying tax on. So no >> additional interest is necessary. The escrow account is his money. So the investment income and the actual interest are his income. Unless he is on an accrual basis, imputed interest is straw man. So, as usual, I agree with Stu. >>> When I posted before several people here told me that I was >>> getting a fair market return on my money, and that was >>> equivalent to, so there was no imputed interest. The buyer >>> wasn't getting anything on the money, so why would he pay >>> interest? >> Exactly. >>> My lawyer and accountant say that makes good sense, but good >>> sense doesn't matter. There is ALWAYS imputed interest on an >>> escrow account regardless of whether is it sensible or not; they >>> have never heard of an exception. >> There may be some facts we're not aware of. But based on the story >> you've told, your lawyer and accountant are just wrong. > But can you cite a code or a case where an escrow account didn't pay > either imputed interest or actual interest? They acknowledge this > should be an exception, but can't see the IRS treating it as such > since there are NO exceptions. The geneal rule is "cash basis taxpayers do not pay imputed anything". The major exception to my limited knowledge is Zero Coupon Bonds. Are you a cash basis taxpayer? That's a very important question because the rules are different for accrual basis taxpayers. Dick -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Drew Edmundson on October 7, 2009, 5:33 pm Please log in for more thread options On Wed, 7 Oct 2009 17:06:17 EDT, rdadams@panix.com (Dick Adams) wrote: snip > >The geneal rule is "cash basis taxpayers do not pay imputed anything". >The major exception to my limited knowledge is Zero Coupon Bonds. >Are you a cash basis taxpayer? That's a very important question >because the rules are different for accrual basis taxpayers. Cash basis taxpayers are on the accrual basis, sometimes, when it comes to interest. If interest is not paid at least annually it will be accrued. That is why you pay tax annually on a CD with over a year term. With imputed interest there may or may not be any actual interest paid. What is imputed may be part of what non-tax law considers to be principal. For example, I sell a lot to Mr. Doe for $100,000. $50,000 to be paid at closing (10/07/2009) and $50,000 to be paid on 12/31/2011. No interest is charged in the contract. IRS considers the $50,000 scheduled to be paid 12/31/2011 to be part interest and part principal at the October 2009 Applicable Federal Rate for short-term loans. I would then accrue part of that interest ratably over the life of the loan and pay tax on it when it accrues. In this case, if the amount in escrow is restricted in such a way as to make it an installment payment taxable when received, then I could see where imputed interest might be required. With rates as low as they were for most of 2008, I have to wonder how much interest we are really talking about. But if Kevin has enough control of the escrow that the actual (i.e. not the imputed) interest income it earns is taxable to him in the year the interest is earned, then it would seem that the amount in escrow does not qualify as an installment payment taxable in a later year. Perhaps he does not have an installment sale after all. There are some expections to imputed interest - short time and diminimis amount. I think that without the contract and other details, we really cannot advise him. If he does not believe his current accountant and current lawyer, then he needs to consult another local professional who can have access to all the documents and facts. If it is so much money that the amount of imputed interest is bothering him this much, he certainly should be able to afford to pay another professional to look at it. Drew Edmundson, CPA Cary, NC -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Installment sale/imputed interest August 12, 2009, 12:53 pm Tax on Imputed Interest June 13, 2008, 1:25 pm interest on installment purchase of s-corp June 5, 2008, 11:24 pm Gross sales and services on NYS Sales Tax form ST-101? March 2, 2009, 11:46 pm Internet sales and local sales tax December 5, 2006, 4:46 pm Imputed Income - IRA Contribution? 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