Loan guaranty to protect investment was nonbusiness bad debt

Article Abstract:

The corporate debt payments of a shareholder-employee were nonbusiness bad debts, according to the decision reached on the Garner, 987 F.2d 267 case. The IRS re-classified the payments made by the taxpayer under the guaranty contract from business bad debt to nonbusiness bad debt after it was recognized that he failed to prove that the foremost intention for the guaranty was to protect his salary. It was concluded that the taxpayer was instead acting to protect his investment. According to Section 166(d)(2), a nonbusiness bad debt is debt that is not incurred in relation to a taxpayer's trade or business. It also defines nonbusiness bad debt as debt the loss from the worthlessness of which is not acquired in the taxpayer's trade or business. In deciding the Garner case, the Fifth Circuit used three criteria in determining the dominant motive: taxpayer investment, after-tax salary and other income at the time of the debt guaranty.

Cases, Laws, regulations and rules, Commercial loans, Bad debts

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Nonbusiness credits: a proposal for change based on break-even analysis

Article Abstract:

The elderly and permanently disabled, dependent and child care, and earned income tax credits do not benefit low-income taxpayers as was their intention primarily because they are not refundable credits. Most low-income elderly or families are unable to benefit from the tax credits because, after standard deductions and personal exemptions, they have no gross tax liability for the tax credit. In addition, those deductions and exemptions increase each year so the available tax credit is reduced. Therefore, the tax credits should be made refundable to benefit those for whom they were intended.

Aged, Elderly, Taxation, Statistics, Disabled persons, Earned income tax credit, Child care tax credits

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When and how to change withholding on wages

Article Abstract:

People who owed income taxes or received a large refund for the their 1996 filing should consider changing their withholding on wages. This is done by filling out a Form W-4, available from employers. People should determine what their tax liability for the year is likely to be and adjust their withholding accordingly. Specific amounts can be targeted for withholding, beyond the standard amounts that are determined by tax status.

United States, Management, Planning, Income tax, Withholding tax

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