How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask jgordosea Your Own Question

jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3032
Experience:  I've prepared all types of taxes since 1987.
3653323
Type Your Tax Question Here...
jgordosea is online now
A new question is answered every 9 seconds

My client loaned a friend $100x to buy the friends ...

Resolved Question:

My client loaned a friend $100x to buy the friend''s principal residence 2 years ago. Accrued interest of $14k on the loan has been added to the principal balance. The accrued interest has not been paid, so was not deducted by the friend or included as taxable income by my client. In 2008 interest will be paid on the loan as well as some of the loan principal. Will the loan principal be 100% taxed up to the accrued interest, or taxed on some part only? If some part only, is taxable part $14k/($100k+$14k), or something else?
Submitted: 6 years ago.
Category: Tax
Expert:  jgordosea replied 6 years ago.

Greetings,

There is no general formula for the situation which you descirbe because the terms of the note will dictate the amount of principal and interest of any particular payment. Generally it is not possible to change the terms of a promissory note for tax purposes without changing the agreement.

It could be all interest or could be 14K interest or could be some other amount depending on the terms of the note. Most notes are written so that all of the paymnet will go to pay the accrued interest until the interest payments are up to date. If you can not justify any of the payment being principal from the terms of the note then it will be all reportable as interest.

I hope this helps for determing the interest portion of hte late payments.

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3032
Experience: I've prepared all types of taxes since 1987.
jgordosea and 7 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
Your experience is that the IRS will follow the term of the note in determining taxation of accrued interest? Or is it enought that my client and friend are consistent in their reporting?
Expert:  jgordosea replied 6 years ago.

Hello again,

Yes, it is the written agreement and not some later unwritten corroboration that will rule (especially if a court becomes involved).

Consistent treatment by both parties does not consitute correct treatment for tax purposes. The area with the most cases, for an example, would be that agreement between an employee and the employer to be treated as an independent contractor has no bearing on the determination from the facts and circumstances if there was or was not an employee/employer relationship. Saying it is does not make it so.

If the client wants to renogiatate the terms of the loan going forward then a different result can apply to payments received after the renegotiation.

I hope this helps to clarify for you. Best regards.

 

Customer: replied 6 years ago.
Because I doubt the note addresses this issue, I'll suggest my clients add an addendum to the note to clarify treatment of principal repayment.

Thanks,

Phil

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.