Famspear's secret information

[Farmer Giles]

NOTICE: THIS TIME, ALL NITWITS MUST STAY AWAY. READ QUIETLY.

You don't realize "income" under the Federal income tax law when the amount of the loan proceeds equals the amount you are legally obligated to pay back. And if you let the bank take the house, you will realize income (for federal income tax purposes) equal to the excess, if any, of the amount realized on the disposition of the house over your basis in that house. Notice that I said "realized," not "recognized." Notice also that I said "income" without saying what kind of income.

I ask again, that you explain it. Whatever it is you're getting at, so far it's new to me. Tell us all about the difference between "realized and recognized income". You brought it up, now explain it! Or maybe someone else will?

And notice that I did not say whether you would incur a federal income tax.

we're all ears; lets hear whole thing out like a simple math sketch.

Let's suppose that this is a house you bought and used for investment (i.e., you never lived in the house yourself; you just rented it out to tenants). Let's suppose you bought the house with 100% financing. Original cost is equal to the amount you borrowed. Let's suppose that the house was always worth exactly the amount of the principal on the debt -- and you never paid down on the debt (except for the interest expense, which we'll just say you deducted as you paid it). Let's assume, as well, that the debt was what we call recourse debt (you had personal liability on the debt).

If the bank takes the house back at fair market value equal to the debt, you now have "realized" income. You may or may not have "recognized" income, and you may or may not have a federal tax liability. (Notice that I did not say what kind of income.)

so Tell Us! Fill in the Blanks...

Do you know why you have "realized" income here? And do you know what additional information you would need to tell how much? Do you know what additional information you would need to tell you whether the income is also "recognized" by you?

I dare not Hazard a Guess... I'm sure you know the answer.

now change the facts. Assume that the debt is non-recourse (you have no personal liability). You now have realized a particular kind of income called a GAIN FROM THE DISPOSITION of an asset. Not only that, but you have "recognized" that gain. And you may even owe a tax (depending on other factors not given in the example).

We’d all like to know why it makes a diference between recourse and nonrecourse.

Remember, in all these situations, on the facts I gave you, the fair market value of the property and the principal of the debt were equal in amount. That is, there was an "even exchange" (in the sense in which I believe you use the term). I am telling you that YOU ARE RIGHT that [b/] there is an even exchange of value, and I am telling you that there is nevertheless SOME SORT OF INCOME being "realized" by YOU under the Internal Revenue Code in these fact patterns

“there is an even exchange of value, and I am telling you that there is nevertheless SOME SORT OF INCOME”...

Amazing. Prove it.

(though there may or may not be a tax, depending on information not yet provided).

Provide it and answer the question please!

[Famspear]

No, Farmer Giles, I'm not here to prove anything. You're the one on the hot spot. Either you know this stuff or you don't. So, let's hear it. Explain how you can realize income in the fact patterns I listed for the home and the debt.

If you're clueless, then just say so. Otherwise, show us that you're not just a gasbag. Put up or shut up.

PS: I don't have any "secret information." This is tax law, pal.

[Farmer Giles]

Do you know what a Blunderbus is? It doesn't really matter what kind of shot you are, that was it's design, anyon can pick one up and use it effectively.

That's why the Farmer has one! I don't need some fancy book-larnin', I use tools open to all. Look up, "yeoman".

[Farmer Giles]

No, Farmer Giles, I'm not here to prove anything. You're the one on the hot spot. Either you know this stuff or you don't. So, let's hear it. Explain how you can realize income in the fact patterns I listed for the home and the debt.

so you want to leave us guessing? afraid you might lose some of the mystery about your livelihood? Anyone who depends on gas and gimmicks to keep going will eventually run out of ideas.

Ok, I'll try and go decipher whatever mystery you think is hidden in your statements. That means I have to search the 'net for examples, when you (apparently) could just as well post the answer. What is the point? Why are you so reticient to divulge? I doubt any of this is as important as you've made it out to be. So far you've openly admitted there are tax-free models of economy, so therefore I can infer that any trade or business could just as easily be structured the same way, ie- tax free.

Nobody needs an accountant or lawyer who just gets them into more trouble. Talk about a "Stupid de-Tax Scheme"!

[Farmer Giles]

Kudos to Farmer Giles for properly parsing and asking the right type of questions to gain further knowledge.

Don't worry, eventually one of the tax gurus will provide answers to your questions. The answers may blow your mind.

I hope so and thank you for it. I wish anyone would answer the questions. So far it's up to me.

[Famspear]

Do you know what a Blunderbus is? It doesn't really matter what kind of shot you are, that was it's design, anyon can pick one up and use it effectively.

That's why the Farmer has one! I don't need some fancy book-larnin', I use tools open to all. Look up, "yeoman".

No, you cannot know what you claim you know without some heavy-duty "book-larnin'".

There are no "secrets." If you're such a hot shot on tax law, then you know the answer. Don't ask me for the answer, Einstein. Every regular poster here at Quatloos knows that I know the answer. Everyone wants to see you step up to the plate and take a swing. Give us a real tax law answer to a real tax law hypothetical.

If you don't give the answer to the hypothetical about the house and the debt and the realized income in connection with the "even exchange," then your title will be Gasbag.

Rise and shine, Einstein!

[Farmer Giles]

you cannot know what you claim you know without some heavy-duty "book-larnin'".

what on earth are you talking about? I don't "know" anything. You just want to play a game of oneupmanship because you dont like that anyone might put 2 and 2 together and see they dont need an tax accountant who wont tell them how anything works or whats the best way to eliminate the gross income out of my life. It's gross for a reason, you know.

If you're such a hot shot on tax law, then you know the answer.

i dont hardly care about tax law. We are talking more about tax logic. But you did tell me all about how YOU were a hot dog, with credentials to show for it, so it falls on the mover to prove his point. Whose post is this?

I have a thorough understanding of financial accounting concepts. You do not.

I have a thorough understanding of tax accounting concepts. You do not.

When I say I have a thorough understanding of financial and tax accounting concepts, I am being neither presumptuous nor arrogant.

With all this supposed expertise, I'd say Quatloos is waiting for your answer before mine. They are your questions!

Don't ask me for the answer, Einstein. Every regular poster here at Quatloos knows that I know the answer. Everyone wants to see you step up to the plate and take a swing.

it's not a pissing contest, much as some would like to make it that way.

If you don't give the answer to the hypothetical about the house and the debt and the realized income in connection with the "even exchange," then your title will be Gasbag.

yours is already Gollum.

[Farmer Giles]

and I have to say, I think that's probably bullshit about any difference between a recourse or nonrecourse loan, for tax purposes. the only thing that matters is a net increase aka 'gross income'. I've seen so many extemporaneous cites of both law and court cases, usually inane and offbase. You accuse these "Paytriots" of promoting stupid theories but it's nothing compared to the drivel that routinely passes for a sufficient pleading in courts all over the world.

Thats why, since you know so much, it is on you to lay out a simple math sketch illustrating any example you wish to make.

[The Operative]

Farmer,

Famspear's scenario is a fairly common one under tax law. If you knew tax law (and accounting), you would understand it and you would know what he was talking about. I might be wrong, but I believe the type of income that Famspear is referring to is p________ income.
BTW, accountants know the difference between 'realized' and 'recognized'.

Something that I believe that Famspear left out is that the scenario's landlord may have actually paid MORE in taxes than he had to over the time he owned the property if he did not know the applicable tax law.

Famspear may eventually take pity on you and give you the answer.

[Famspear]

Farmer Giles wrote:

what on earth are you talking about? I don't "know" anything...i dont hardly care about tax law. We are talking more about tax logic....it's not a pissing contest, much as some would like to make it that way.

Oh, really? It's not a pissing contest? Oh, I think you mean it STARTED as a pissing context, but it's NO LONGER a pissing contest. Or you wish it would stop, now that you're boxed into a corner.

You're the one who started the prior thread in question, and you're the one who entitled that thread "You are Stupid. And I will Prove it."

Life Lesson: If you don't want to have to be figuring out a way to extricate yourself from a pissing contest, then don't start one. We called your bluff, and now we're down to hearing you whine like this:

what on earth are you talking about? I don't "know" anything...i dont hardly care about tax law.

All right, Farmer Giles.

And yes, by the way, the answer varies, depending on whether the debt is recourse or nonrecourse. That's why I stuck the recourse/nonrecourse alternatives into the fact pattern.

Stay tuned for the answer to the house-debt-recourse-nonrecourse-realized-recognized hypothetical (answer to be posted later this week, hopefully on Tuesday, as it's getting late).

And Farmer Giles! Thank you for playing.

[Farmer Giles]

I do not care if your feelings are hurt. If you don't want to be a Nitwit don't act like one.

[Famspear]

I do not care if your feelings are hurt. If you don't want to be a Nitwit don't act like one.

Too late for that kind of bluffing, Farmer Giles. I'm not the one whose feelings are hurt. You are.

And, of course, what you say in your second sentence applies to you, not me: If you don't want to be a Nitwit, don't act like one.

[Farmer Giles]

Famspear's scenario is a fairly common one under tax law. If you knew tax law (and accounting), you would understand it and you would know what he was talking about. I might be wrong, but I believe the type of income that Famspear is referring to is p________ income.
BTW, accountants know the difference between 'realized' and 'recognized'.

Something that I believe that Famspear left out is that the scenario's landlord may have actually paid MORE in taxes than he had to over the time he owned the property if he did not know the applicable tax law.

I really doubt it. Anyone who claims "secret knowledge" but can't simply lay it out is full of it. I'm sure he does know something interesting, and I would like to have heard it, but it doesn't change the basic fact that any business or trade can somehow be structured to create no gross income.

When I first joined the board a few days ago I recognized the way this place goes and accepted the rules. But it takes 5 times as long as needed to say anything, and sometimes nothng ever gets said. It can't be that big of a secret. No, it's not a pissing contest. But if you try to buffalo me you will fail, and if you try to attack me you end up doing yourself in.

I find it hilarious that so much fun has been handed my way on these home-confined days. The funniest part is how upset you all get when given your own medicine.

[Farmer Giles]

I do not care if your feelings are hurt. If you don't want to be a Nitwit don't act like one.

Too late for that kind of bluffing, Farmer Giles. I'm not the one whose feelings are hurt. You are.

And, of course, what you say in your second sentence applies to you, not me: If you don't want to be a Nitwit, don't act like one.

is that a little like "i am rubber and you are glue..."??? grow up.

[LPC]

Whatever it is you're getting at, so far it's new to me.

Yep. Couldn't have said it better myself.

I've provided several citations of court decisions to refute claims of FG, and unless I'm very much mistaken (which I rarely am), FG has yet to provide any authority for *anything* he has claimed.

So here's a new challenge for The Farmer: Provide *one* citation to *one* statute, regulation, court decision, or other authority that supports *ANYTHING*. Prove that the earth is round. Prove that the sky is blue. Prove that water is wet. Prove *SOMETHING* that can be verified.

**ANYTHING**.

It's like the joke about why the chicken crossed the road: Just to show the armadillo that it could be done.

Go ahead. Prove *something*. Just to show that it can be done.

Because so far, you're just roadkill.

[Farmer Giles]

I've provided several citations of court decisions to refute claims of FG,

you've provided nothing of the sort. the only contribution I recall you making was invective and bandwidth dribble. Go ahead and post these mysterious cites and lets see what you've got.

[LPC]

Anyone who claims "secret knowledge" but can't simply lay it out is full of it.

Famspear never claimed to have any secret knowledge, so now you've gone beyond bs'ing and you're just plain lying.

[Farmer Giles]

Now, I'd like to add another way to create a taxless structure. (tax falling on the gross, as usual) Forget about borrowing and lending on a house. What about just selling a lien altogether. This parallels more closely the idea of

"i'll bond your grocery and credit the value. Then I'll sell at cost and avoid any gains."

What's my basis in the lien? I already had it, like any other acquired equity. In fact the asset didnt exist until I created it, just as I create value working in a trade or business.

think of it this way; I deposit the lien with a financier, who credits the money. Everyone is happy. Eventually the lien covers nothing as it's collateral is consumed or the filing expires.

So it comes down to, if there's any lesson to be learned from today, it's that when we buy and sell we run the risk of making a profit; but when we credit-fresh we stay on our own property. Is that called Pay it Forward? I like that, its much more harmonious that trying to 'get over' on the next person, which is exactly the kind of behaviour we see where 'sales' are involved. Sales are trying to get more than what something is worth, and only succeeds by many little mean lowdown dirty rotten tricks to prey on an unsuspecting and confused public.

Lets remember that to Credit is to Have Faith. That is very important.

[rogfulton]

According to the Bing 'decision engine', the definition of lien is

NOUN
1. legal claim on somebody's property: the legal right to keep or sell somebody else's property as security for a debt
[ Mid-16th century. Via French < Latin ligamen "bond" < ligare "bind" ]

Maybe you meant to say something else? Or do you have a different definition of lien? According to thefreedictionary.com, it's a synonym for spleen

2. lien - a large dark-red oval organ on the left side of the body between the stomach and the diaphragm; produces cells involved in immune responses

Farmer Giles, it sounds like your proposal is to tell a financier they owe you part of their property because you have given them a document that says so. Or maybe you can give an example of whose property the lien would give you the right to keep or sell?

What about just selling a lien altogether. This parallels more closely the idea of

"i'll bond your grocery and credit the value. Then I'll sell at cost and avoid any gains."

What's my basis in the lien? I already had it, like any other acquired equity. In fact the asset didnt exist until I created it, just as I create value working in a trade or business.

think of it this way; I deposit the lien with a financier, who credits the money. Everyone is happy. Eventually the lien covers nothing as it's collateral is consumed or the filing expires.

In your bonded grocery example, by selling at cost and avoiding any gains, how does the grocer pay his overhead costs (electricity to keep the meat, produce and dairy from spoiling)? And how would the grocer get anyone to help him sell the product? He couldn't compensate them with groceries because that would mean the groceries he did sell would not bring in as much as he paid, resulting in not being able to pay his overhead costs (see above). I am pretty sure if the groceries were being sold at cost, this particular grocer would have more business than he could handle alone. By the way, a bond is a promise to perform and a lien is a possible result of the failure to perform so how is selling a lien equal to bonding groceries?

I am pretty sure creating a lien requires a signed legal contract permitting a lien upon non-payment or a court order or both. In your lien example, you

already had it, like any other acquired equity.

How did you get it? If you bought it, did you create income for the other party by paying them more than it cost them? If they sold it to you at a loss, you have a gain (therefore, income) by presenting it for face value (your gain is not offset by their loss). If you produce it yourself, try not to be too surprised when the financier you try to deposit it with "for value" laughs (or, worse for you, considers it a hold-up note).

A lien does not get 'consumed' nor does it expire. It is either paid as agreed (discharged) or the creditor takes possession to affect discharge (think repossessed car). And it doesn't matter how much has been paid toward the lien if the entire amount is not paid.

[The Operative]

Farmer Giles sent me a PM in response to one of my posts in the previous thread....

since you asked, here's my answer. they've locked the thread.

If you believe that receipt is an even exchange for your money, take that receipt somewhere and try to spend it...take the receipt back to the bank and tell them you want the amount shown on the receipt.

see, now that ive made sense out of the proposed transaction it works. i expect them to give me my money. You want me to go spend it first, then claim on some old receipt. that's impossible, I would have no further equity at stake.

The reason you can't claim on an old receipt is because in reality, the receipt is completely worthless. You are not receiving something of equal value for your deposit BECAUSE THE AMOUNT OF MONEY DEPOSITED IS STILL YOURS.

The money you deposit in your account at a bank may not be in your physical possession, but it is still yours. An exchange has not been made. The bank does make some accounting entries, but do you know what they are?

No, the money I actually deposit in the bank is no longer mine. You could mark with a red felt-tip pen some bills just to prove I would never see these again, and where they went. In even-exchange for my deposit I received an equal credit, good for spends and withdrawals.

You are confusing the physical money with the value of the money. I'll rephrase it since you are so dense...the AMOUNT OF MONEY you deposit in your account at a bank may not be in your physical possession, but the amount of money is still yours.