Opinion

Felix Salmon

The deliciousness of Rolling Jubilee

By Felix Salmon
November 13, 2012

What to make of Rolling Jubilee, the latest bright idea from Occupy? The idea is simple:

Banks sell debt for pennies on the dollar on a shadowy speculative market of debt buyers who then turn around and try to collect the full amount from debtors. The Rolling Jubilee intervenes by buying debt, keeping it out of the hands of collectors, and then abolishing it.

Rolling Jubilee has already raised $115,000 — which they say is enough money to buy and cancel more than $2.3 million of debt. After Thursday’s variety show and telethon, both sums will surely rise substantially.

The reaction from the financial press has been mixed. Tim Worstall somehow contrives to admire the idea while bashing everything else associated with Occupy at the same time; Nick Summers, on the other hand, thinks it’s fundamentally misguided.

A person’s debt can’t truly disappear with no consequences. The amount forgiven is technically income—“cancellation of debt income,” in Internal Revenue Service terms. It’s a dollar-for-dollar conversion, says Robert Willens, a tax expert based in New York. For example, a person with regular income of $50,000 who has $25,000 in credit-card debt discharged will be taxed on April 15 as if she earns $75,000.

“There’s not any doubt about the tax outcome at all,” says Willens. “That’s almost always the case with debt discharges—you wind up with this tax problem that almost always mitigates the benefit of the discharge.”

Summers didn’t speak to anybody at Strike Debt, which is organizing this jubilee, but he could at least have scrolled down to the Rolling Jubilee FAQ:

Will the Rolling Jubilee have to file a 1099-C Cancellation of Debt form with the IRS?

No. The Rolling Jubilee will earn no income from the lending of money and is therefore exempt from filing a Form 1099-C under the Internal Revenue Code Section 6050P.

In other words, there will not be any tax consequences to what Strike Debt is doing, on the perfectly legal grounds, as Worstall has found in the tax code, that “you do not have income from canceled debt if the cancellation or forgiveness of the debt is a gift”.

To put it another way, the debtors will no more have to pay income tax on the forgiven debt than they would have to pay income tax if I gave them a gift of that money. What’s more, Strike Debt won’t report the cancellation to the IRS, and the debtor will probably not know that their debt has been forgiven. Given all that, the chances of the IRS coming after the debtor for income tax on the forgiven debt are exactly zero.

Still, that raises Matt Yglesias‘s question. Let’s say there’s a family with $20,000 of debt which is so old and unrecoverable that it’s selling for a mere 5 cents on the dollar. What would make that family better off: forgiving that debt, or giving them a gift of $1,000 in cash?

The answer is that the question misses the point, rather. The point of Rolling Jubilee is that it’s doing secret random debt forgiveness, not because that’s the most effective way to help out struggling indebted Americans, but because it’s about time that ordinary Americans started getting help with their liabilities rather than just too-big-to-fail financial institutions. Strike Debt is trying to build what it calls “a growing collective resistance to the debt system” — and this exercise is part of what you might consider a broad politically-motivated deleveraging, a way of taking power back from the creditor classes (a/k/a the banks).

The scheme isn’t conceptually perfect: as Strike Debt themselves say, the very fact that they can buy up debt for pennies on the dollar in the first place is “part of the scandal that we are trying to highlight”, and yet it’s also something they are ratifying with their participation. And anybody who’s read Jeff Horwitz’s wonderful series on the debts which were sold by Chase will know that much of the time the “debts” which are being bought aren’t actually legitimate debts at all. For instance, it’s alleged that Chase systematically shredded incoming correspondence such as records of borrower payments and counter-judgments extinguishing debts, before selling those debts on to collectors. Horwitz reckons that at Chase alone, billions of dollars of outstanding claims have highly questionable legitimacy.

As a result, Strike Debt will probably, at some point, end up paying banks for debts which aren’t legitimate at all: indeed, if they’re looking for the debt which trades at the lowest levels on the pennies-per-dollar market, they’re likely to be buying the most dubious debts, on an “as is” basis.

So the symbolism here is in some ways more important than the actual results, which pretty much by definition are unknown and unknowable. Still, that’s one of the reasons I like this scheme. In a world where philanthropy is increasingly run by business professionals who want to measure results and return on investment, this is a refreshing throwback from a time where you would just do some good in the world and that was that. US households have too much debt; this reduces their debt burden; therefore it’s a good thing — especially seeing as how it also acts as a focal point and rallying cry for a much broader agenda.

That agenda is not represented in Washington: neither Democrats nor Republicans have any desire to touch Occupy with a 20-foot pole. But it’s an agenda which has real popular support all the same, from people who are fed up with seeing bankers get rich even as real median incomes stagnate for decades.

And that’s why I think the idea behind the Rolling Jubilee is so delicious. It’s a group of ordinary people who are perfectly happy to help banks lose 95 cents on the dollar by paying them the other 5 cents, and then forgiving the loan entirely. Of course, the banks know that some percentage of their loans will go bad, and, especially in the case of credit card debt, they will often have made a net profit on the account long before they sell off the dregs for 5 cents on the dollar. But even if the banks aren’t being hurt at all, it still feels great to have the opportunity to be an anti-bank for once. There’s something very good about forgiveness.

Comments
51 comments so far | RSS Comments RSS

The only question I have is whether the debts are well enough documented so that Rolling Jubilee itself will not be used by banks who will sell the debt multiple times. That is, I do think it is important that RJ be able to provide some kind of evidence of cancellation to the debtor so that the debtor is truly protected from being harassed.

Posted by rb6 | Report as abusive
 

I don’t buy Worstall’s tax analysis (and I am a tax attorney). The cancellation of debt income should only be a gift to the extent of the amount the charity pays for the debt. That’s especially true given that the charity explicitly plans on cancelling the debt as soon as acquired.

There’s no substantial distinction between this plan and the charity simply giving you $5k and you using that cash to settle your debts with the bank. The difference between the amount of the debt and the payment is income.

Posted by rbeard0330 | Report as abusive
 

“In other words, there will not be any tax consequences to what Strike Debt is doing…”

FALSE, the sellers of the debt will book a loss and that will be [obviously] tax deductible.
By using the gift loophole so the beneficiaries don’t pay income tax, Strike Debt is defrauding taxpayers.

Posted by alea | Report as abusive
 

@alea: “defrauding” is a strong word with specific meaning. Perhaps you meant “legally using the gift tax provisions as allowed by law.”

Posted by SteveHamlin | Report as abusive
 

@SteveHamlin:
It is near certainly fraud, gift tax provisions said the claims should be based on fair market value, and buying distressed debt for 5 cents and gifting 95 is pure fraud on the taxpayers.

Posted by alea | Report as abusive
 

@SteveHamlin:
so not quite “legally using the gift tax provisions as allowed by law.”

Posted by alea | Report as abusive
 

Alea, the market is what the banks can get for it, which is 5%. If they could really sell it for more, wouldn’t they?
You don’t have any problem with the greed of the banks, but to help out the poor, that’s just evil, correct?

Posted by brotherkenny4 | Report as abusive
 

creditors are owed. they sell account to those in business of collection. those collectors have expense and overhead. they hope to collect more than purchase price and expense of collection. those accounts they don’t resolve they in turn sell to one dealing with even worse debt.

this scheme does not hurt bank creditor-seller. it just competes with for profit buyers of claims. it helps debtors as they are let off the hook – albeit they do have income for forgiveness of debt. you could help them more by filing a satisfaction of the debt on the record.this could help their credit.

Posted by hdl | Report as abusive
 

I think you’d be surprised Felix… when debt is cancelled the person who cancels it is supposed to issue a 1099-C to the debtor, who then has to file taxes on it, same as if they’d been written a check. The Jubilee folks have a loss and no tax liability, but the person whose debt is cancelled ends up with a taxable income.

IANAL, so I don’t know what consequences are if the Jubilee guys don’t issue a 1099, but presumably similar to an employer not issuing them – major hassles.

http://turbotax.intuit.com/support/iq/Le ss-Common-Income/1099-C-Cancellation-of- Mortgage-Debt/GEN12459.html

Posted by streeteye | Report as abusive
 

(just to add – per the link, if it’s mortgage debt on their primary residence the debtor may qualify for relief, but not for credit cards etc.)

Posted by streeteye | Report as abusive
 

I’ve seen many comment that this is somehow “sticking it to the banks” which is a pretty big misread. The reason these debts can be sold for pennies is that the debt holder has already determined that there is little chance of ever collecting on this debt. The debt holders are getting paid what they think the debt is worth. Seems to me the only one who loses here is the debt collection industry which misses out on the chance to hound people. (Queue violins…)

In someways this is both the genius and weakness of the idea. It really does nothing to punish the people who caused a lot of these problems. But it does do a lot to potentially help everyone; the people with the debts, the financial system trying to clear all the old, uncollectable debt off their books, the broader economy as the first two aspects help future growth.

I also think this hearkens back to a more traditional sense of “charity”. Let’s all just put up a little money to help people out without constantly trying to measure if they “deserve” the help or if this will magically “solve the whole problem.” Feels like good old fashioned “good works” to me.

Posted by MaxUtil | Report as abusive
 

@streeteye – I have no idea what kind of business structure the jubilee guys are setting up to do this. But presumably, if they know enough to participate in debt auctions, they know how to structure it to either avoid the reporting requirement or simply to firewall themselves enough to avoid the IRS ever forcing anyone to report. Turbotax help files aren’t really the final answer on complex tax matters than no individual will ever face.

Posted by MaxUtil | Report as abusive
 

@rb6 – I don’t have direct knowledge of this, but the secondary debt market is populated with fairly sophisticated players. I doubt the collectors currently buying up this stuff would be too happy if the banks were reselling them the same debts over and over.

On the documentation issue, RJ isn’t explicit, but I think the point is that they buy the debt, inform the credit agencies that the debt has been disposed of and presumably give the debtor a notice that the debt is cancelled. If RJ just buys the debt and sits on it, the debtor wouldn’t get hounded for payment, but the debt would still legally exist, be on their credit history, etc.

Posted by MaxUtil | Report as abusive
 

Why exactly is this a good idea? Most of these people deserve these debts? Why not spend the money on education or something worthwhile rather than forgiving “sally no incomes” car loan so she can go out and get another new car she cannot afford and that will provide her little utility above the new car she just bought?

There are a lot of ways to help poor people, forgiving their debts is generally just a way to encourage the creation of new debts unless it is also paired with some more substantive assistance.

Posted by QCIC | Report as abusive
 

“Tim Worstall somehow contrives to admire the idea while bashing everything else associated with Occupy at the same time;”

Yes, yes I do.

“In a world where philanthropy is increasingly run by business professionals who want to measure results and return on investment, this is a refreshing throwback from a time where you would just do some good in the world and that was that. US households have too much debt; this reduces their debt burden; therefore it’s a good thing”

Replace “business professionals” with “there outta be a law against that” and you have exactly my approval.

This is us, the individual citizenry, spending our money voluntarily. This is conceptually different from government confiscating our money and spending it as politicians desire. That is the point that I make and is the one I consider important.

“I think you’d be surprised Felix… when debt is cancelled the person who cancels it is supposed to issue a 1099-C to the debtor, who then has to file taxes on it, same as if they’d been written a check. The Jubilee folks have a loss and no tax liability, but the person whose debt is cancelled ends up with a taxable income.

IANAL, so I don’t know what consequences are if the Jubilee guys don’t issue a 1099, but presumably similar to an employer not issuing them – major hassles.”

As Felix points out. This is only true of the corporations. It is not true, as Felix points out I dug into the IRS code to prove, of individuals or other third parties that purchase and then forgive the debt.

Posted by TimWorstall | Report as abusive
 

I’m highly skeptical of Worstall’s tax analysis (and I am a tax attorney). The gift element of the cancellation seems like it should only be the purchase price of the debt, not entire amount. How is this different from the charity giving the debtor $5k and the debtor purchasing his own $20k debt? In that case, it’s very clear that the debtor has $15k of income. The substance appears to be the same.

Posted by rbeard0330 | Report as abusive
 

Happy to be shown wrong, wouldn’t be the first time… can you maybe quote an attorney on how that works, what’s the accounting treatment, ie how an individual or the Jubilee guys can cancel a debt without generating income for the debtor?

I think a lot of people would want to use that loophole, easy way around gift taxes, I lend you money, then cancel the debt.

Posted by streeteye | Report as abusive
 

@rbeard0330 – I’m not a tax professional so you should know better than me. But it took me 2 minutes to find:
IRS Publication 4681 – “Generally, you do not have income from cancelled debt if the cancellation or forgiveness of the debt is a gift.”

I see some casual analysis on the web stating, “This treatment of the cancellation of debt as a gift typically applies only if the lender and the borrower have a personal relationship, like family members. Why? Because it’s unlikely someone unrelated to you would just give you a gift.” But I think this may be where the Jubilee idea is built on the fact that they are not a profit making venture. They state that because they are not in the business or trying to make profit off the debts they buy, their release of it can be considered a gift.

But I can’t find any mention of there being consideration of what price the debt was acquired for being relevant. Perhaps the key point is that you can’t go out and purchase your own debt at a discount. These debt are bundled and anonymous at sale. There doesn’t appear to be any way to purchase a specific debt directly. But again, I’m not a tax professional.

Posted by MaxUtil | Report as abusive
 

Alright, how many of you guys squawking about the unlikely legalities of this scheme also squawk about the daily illegalities of Wall St. and the big banks? I’m with Felix on this one.

Posted by Mbuna1 | Report as abusive
 

@streeteye under section 26 USC 102, a parent’s forgiveness of a child’s debt out of “detached and disinterested generosity” would NOT be considered income for the child. IF the parent received some sort of benefit by transferring a gift with a liability to a child, then the PARENT may be deemed to have received income. In some scenarios, therefore, forgiveness of a debt does not give rise to taxable income for the debtor.

Speaking more generally, a gift within the meaning of 102 “proceeds from a ‘detached and disinterested generosity’ ” according to the Supreme Court in Commissioner v. Duberstein. This may qualify? Other commenters have noted that it’s unclear what the value of the gift is.

Note that the code section cited by Rolling Jubilee refers to a filing/notice requirement – NOT whether or not anyone owes taxes on this. Rolling Jubilee is just saying “we don’t have to comply with irritating filing requirements.” This is also true, per 26 USC 6050P, if the amount of the debt forgiven is less than $600, which many of these debts likely will be (I’m thinking of a low-value credit card debt, overdraft fees, that sort of thing.)

Whether or not Rolling Jubilee is entitled to some sort of tax credit or incurs a tax liability is something I’m going to think about for another few minutes before commenting.

Posted by odc | Report as abusive
 

I’m a tax lawyer, and its very clear that as long as there’s donative intent (and there clearly is), then its a gift and there is no COD income. This is crystal clear, black letter law stuff.

Posted by jpe12 | Report as abusive
 

Felix – one note on your comment that they’ll end up paying non-legit debts. You’re correct that there are a lot of them, but it can be a huge hassle to get rid of them. The typical scenario in which they are a problem goes something like this: Consumer needs car, consumer applies for loan, consumer gets turned down/quoted ridiculously high rate, consumer wants to know why, consumer finds problem debt.

Now, how long will it take for the consumer to get that debt expunged? Credit reporting companies must investigate the items within 30 days… for a consumer in need of an immediate loan, that is a long time. The process may also be a hassle.

Conclusion: For many consumers, expunging incorrect debt for pennies on the dollar may also be a welcome and noble act of charity, if it means the debt is removed from their 7-year credit history.

Posted by odc | Report as abusive
 

It’s better than nothing I guess. Canceling a $20,000 debt or putting $1,000 into the hands of a poor person are both 1 time treatments of a longterm problem of financial illiteracy.

If we are going to force the successful and prudent to lift more of the burden than at least let the working poor learn to help themselves. It’s long past time for a forced savings program.

If the government can force you to buy health insurance then by god they should force you to save 10% of your wages and lock box it until you hit normal retirement age.

Posted by y2kurtus | Report as abusive
 

A small point that seems to have escaped much notice: The debtor will no longer be harassed by commercial debt collectors, who rate about the lowest on the scale of humanity, who ignore the law in their efforts to collect what might not even be a legal debt, who lie and threaten people who can’t pay their debt.

That’s a f*****g big deal!

And I think the people behind Jubilee have done their research and can do this without causing an income event to the debtor.

Posted by FarWestErica | Report as abusive
 

@jpe,

Can you point me to the black-letter law that approves a three-party transaction like this? It hardly seems clear to me. As I pointed out earlier, in substance this is a gift of the FMV of the debt, coupled with a cancellation by the lender of the remainder. Note that the lender is certainly correctly claiming a taxable loss.

Posted by rbeard0330 | Report as abusive
 

any debt which is for sale at 5 cents in the dollar has almost invariably been written down to zero in the bank’s books a long time ago.

Posted by dsquared | Report as abusive
 

“Summers didn’t speak to anybody at Strike Debt, which is organizing this jubilee, but he could at least have scrolled down to the Rolling Jubilee ”

Let’s face it, Occupy are a gang of amateurs.

As for the financial press in general, and Summers in particular, they aren’t even that good.

This is a brilliant idea. I wish we could find a way to make this work for Greek debt in Europe.

Posted by Dafydd | Report as abusive
 

wow. i was going to contribute. then realized the ‘pennies on dollar’ debt is debt that is priced so low that it’s on the verge of getting washed away by bankruptcy anyhow. so essentially, what good is my donation cancelling a debt that’s about to get canceled by bankruptcy laws ANYHOW?

speaking of which, my sister declared bakruptcy a few years ago, now is back on a reckless spending spree. again. so this bankruptcy/debt forgiveness is doing what exactly to improving the lifestyles so they are lived within means? if it does nothing, it’s a waste of money.

Posted by justme2012 | Report as abusive
 

@ jpe12:
Interesting that another tax lawyer cited by Bloomberg was quite unequivocal: “The amount that is paid the credit card company is a gift. The COD income is not.”
http://www.businessweek.com/articles/201 2-11-13/to-forgive-is-divine-then-comes- the-tax-bill#p2

Posted by alea | Report as abusive
 

@alea: Two tax attorneys come to opposite conclusions about the tax effects of Rolling Jubilee.

So then I guess you’d want to walk back your statement “It is near certainly fraud.”

Posted by SteveHamlin | Report as abusive
 

@SteveHamlin:
If the cancellation of debt is a straightforward, legit gift, why is the rolling jubilee hiding it from the IRS?

Posted by alea | Report as abusive
 

@alea: What is RJ hiding from the IRS? What misrepresentation (required for fraud) is occurring?

A charity is not required to issue 1099s to charity/gift beneficiaries – so no hiding going on there.

Nor is a gift taxable to the recipient as income (including cancellation of debt if that cancellation is a gift) – so no hiding of income there.

Where is the hiding of what is legally required?

Posted by SteveHamlin | Report as abusive
 

If >$13/14k of gross debt forgiven in a single year – somebody has a tax problem. Might be if >$0 – if IRS wants it to be that way.

If OWS can buy this stuff for pennies on the $, why don’t they just resell it to the debtor at their cost? The program becomes self-sustaining this way. If the debtors won’t pay even that – to hell with them.

Posted by MrRFox | Report as abusive
 

@SteveHamlin:
But you don’t need to set up a [tax-exempt] charity to gift a debt cancellation, that’s my point. Nobody is stopping you or me from buying distressed debt and writing it off and gifting the fair market value to the debtor.
The RF charity is used as a cover to gift something that’s 20 times fair market value while hiding the beneficiary from the IRS.

Posted by alea | Report as abusive
 

@alea: RJ is not gifting something worth 20x what they paid for it, they are gifting an asset that is worth exactly what they JUST BOUGHT IT FOR ON THE FREE MARKET – no more or no less.

Otherwise, you are saying that banks just gifted 95 cents-on-the-principle-dollar to RJ – I doubt the bank asset managers would agree with you. And you are implicitly saying that market-clearing prices are not a good indicator of asset values.

And if you are objecting to forming legal interstitial corporate entities to legally structure legal transactions, and the result is to legally not inform the IRS of certain information about those transactions, then you’ve just accused most corporate tax planners of fraud.

If finding, structuring and using legal loopholes is good for the goose, it is good for the gander.

Posted by SteveHamlin | Report as abusive
 

@rbeard0330 – This is not a cancellation of any part of the debt by the original creditor. They are selling the entire debt. The buyer of the debt is purchasing that debt for less than the dollar value of the debt, but they are still buying the entire obligation and the right to collect on the full dollar amount.

So the “gift” is of the entire debt amount. I don’t think the price they paid to acquire the debt is relevant. I think the only relevant question is can a third party acquire and then gift the debt away.

Posted by MaxUtil | Report as abusive
 

@SteveHamlin:
RF is buying debt at 5 cent and cancelling it all (100), so gifting 20 times fair mkt value (100/5).
The banks didn’t gift anything, they sell in the present case for a loss of 95 cents (tax-deductible).

Posted by alea | Report as abusive
 

@y2kurtus, how is that different from Social Security? Government mandated program, equal to 12% of income, invested in Treasuries with a government guarantee on top of that.

I sure as heck don’t want to contribute to Social Security *AND* be forced to burn another 10% on top of that on a new questionable government program. That could seriously hamper my retirement savings.

Posted by TFF17 | Report as abusive
 

Let’s put it this way, if a bank canceling a debt earns you a 1099, but ‘Rolling Jubilee’ doesn’t to due to ‘donative intent’, and it doesn’t result in gift tax like giving to your kids/friends … our tax laws are even crazier than I knew, and I knew they were batshit insane.

Posted by streeteye | Report as abusive
 

@alea – I’m confused as to what your complaint is. If the law allows a debt holder to gift away the debt without there being tax implications for the debtor then what does it matter what they paid for it or what the FMV is?

Financial institutions are not allowed to do this. It appears (with some debate) that a person or entity who is not in the business of lending or trying to profit from lending is allowed to do this. If this is a correct interpretation of the law, it isn’t “fraud”, it’s just the law. If you don’t think that’s fair, fine, argue the law should be changed.

Posted by MaxUtil | Report as abusive
 

@alea: the gift is the cancellation of a legal right to try to collect an amount on a piece of paper. That right to try to collect was worth, on the open market, 5% of some notional amount. The market price of that right is how the IRS values the gift amount of that right. The gift value of that right is the amount the donor bought the rights for in a non-distressed market sale. I can’t explain it more simply than that.

If I gave someone a bond of a troubled company with a notional amount of $100,000, which was trading at $25,000 on the open market due to the likelihood of bankruptcy, did I give them $100,000 or $25,000? I gave them $25,000, regardless of the number of zeros on the debenture.

@streeteye: the tax code says the government doesn’t get a slice of the economic transaction on an INCOME TAX basis if it is motivated by love, kindness or charity, with nothing expected in return. The tax code separately says that in an ESTATE TAX context, gifts from one family member to another are likely to be more for inter-generational estate tax planning purposes, and limits the non-estate-taxable amount of those transfers. But even in that context, there are no income tax effects resulting from that gift.

A company making an economic decision to not bother collecting on a debt is not motivated by kindness, love or charity, and because the underlying economics of the transaction are different, the tax treatment is different.

Posted by SteveHamlin | Report as abusive
 

@SteveHamlin:
I understand your point. Just minor issue of semantics.
If that’s clearer, the 5 cent gift results in a cancellation of debt income for the debtor of 95 cents, and that would normally be taxable except if the debtor is bankrupt or if an artificial scam is in place to avoid it.
I agree with @streeteye comment above.

Posted by alea | Report as abusive
 

@alea – If I understand you correctly, following the letter and intent of the tax code is an “artificial scam”. It’s not clear to me if you think that this is a scam because that’s not really the tax code and RJ is somehow tricking the IRS or if you think it’s a scam because the debtor “should” owe tax regardless of whether the law says they do or not.

If it’s the former, this is a debate about legal facts, but you are offering up nothing to support your contention. If it’s the latter, you at least have an argument. But then you should be explaining why you think the laws as written are a scam and not just throwing around accusations. If it’s OK to wipe out debt under bankruptcy, why is it not OK when it is done as charity?

Posted by MaxUtil | Report as abusive
 

@MaxUtil:
I doubt that the intent of the law is for a 5 cent purchase of distressed debt to result in 95 cent of lost taxable income for the IRS.

Posted by alea | Report as abusive
 

@alea – Well I can’t read the mind of the people who wrote it. But I will say, if a debt cost 5 cents on the dollar, the chances of the IRS ever collecting the tax is pretty nill anyway. The pricing indicates that this debt is considered essentially never going to be paid. Adding a tax burden on it probably just means that person has swapped an old unpayable debt for a new one and will probably end up in bankruptcy (no taxes are going to get paid).

I understand that there is a moral/fairness issue here of why should someone who knowingly took on debt just getting it wiped out. And I’m 100% positive that some of the debt wiped out by RJ will be for people who don’t deserve the break, will just run up more debt, etc. But if you look at the reasons most people have debts like this, it’s really not all welfare queens who bought flat screen TVs on credit. Its mostly unpaid medical bills from someone who got sick and got hit with massive expenses they can’t pay, people who made a mistake and got pushed deeper and deeper into debt by a system can easily turn a missed payment into fees multiple times higher than the original amount, etc.

I think it’s OK to say, you know what, things are pretty heavily stacked against the little guy in this country. We routinely let large powerful individuals and institutions get away with stuff in terms of the common good. Here’s a way to do that for individuals and pretty much zero cost to anyone except the people who voluntarily give their money. I’m OK with the fact that somewhere, someone who I don’t approve of will get a small break.

Posted by MaxUtil | Report as abusive
 

@alea: the lost taxable income for the IRS happens when the selling bank books a capital loss on the sale to any market bid, or when they wrote the account down on its OWN books from 100 (paying debtor) to 5 (non-responsive judgement-proof non-payer).

That is the 95 tax loss you complain about.

No different than the same tax loss incurred from a bank selling the debt to a real debt collector for 5.

Posted by SteveHamlin | Report as abusive
 

Hi Admin,

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Posted by DanMarshall | Report as abusive
 

@SteveHamlin:
No, that’s not what I complain about.
I mentioned [7:35 pm utc] that there is a taxable loss when the bank sells the debt. What I complain about is that there won’t be an offsetting taxable “cancellation of debt” [COD] income [to the debtor] because of the RF scanmming/hiding/non-reporting of the cancellation.

Posted by alea | Report as abusive
 

@FS – Re: this – v v -

“felixsalmon @asymmetricinfo What happens if all the amounts forgiven are less than $13k? Then does the problem go away?”

Gift tax is payable (by the DONOR) on all gifts to a single donee in excess of $13/14k per year by a single donor. Single-year gifts of less than this amount are home free IF, IF, IF – the IRS accepts that the transactions are truly “gifts”, not the commercial write-off of debt. If they don’t – the whole load is taxable to the donee as income. It’s the IRS’s call on the characterization question – unless the Congress or the USSC decide to overrule IRS. (Kind of ‘Twilight Zone’ stuff to imagine an OWS-type lawyer arguing a tax case to the USSC.)

IMO OWS should operate this thing as a Not-For-Profit business, collecting something more than cost from debtors who want to clear their records, the mark-up to cover losses on those who can’t or won’t contribute. Good for the program and better for OWS types – they need to learn some things about business reality; this would do that.

Posted by MrRFox | Report as abusive
 

@alea: It seems like you are bothered by the fact that the IRS doesn’t tax, as income to the beneficiary, transfers motivated by love & kindness (due to public policy decisions vis a vis economic substance of the transactions). If so, your concern is unrelated to RJ in particular.

If I gave a random person with troubling debt some money, because I’m rich and that’s what I like to do and my motivation was love kindness and charity, then I don’t issue a 1099 and the recipient doesn’t recognize taxable income.

If a previously-established charity gave people in financial distress money, they don’t issue a 1099 and the recipient doesn’t have taxable income.

If RJ gives people in financial distress money, they don’t issue a 1099 and the recipient doesn’t have taxable income.

If RJ has an asset, and gives that asset to a person in financial distress , then RJ doesn’t issue a 1099 (for the FMV of that asset) and the recipient doesn’t have taxable income on the FMV of that asset.

Which one of those bothers you, and which not?

Posted by SteveHamlin | Report as abusive
 

Almost a year later, they raised money but what have they done?

Posted by Dennis85 | Report as abusive
 

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