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Wrap-up Questions for Chapter 4
- What is wrong with the shrinkage of assets doctrine? Why should a loan and the use of loan proceeds be treated as separate transactions?
- What should be the applicability of the “disputed debt doctrine” to cases where the amount of a debt is fixed and determined, but its enforceability (in a court) is highly
unlikely? Taxpayer borrows money in order to engage in an illegal transaction.
- The Bankruptcy Code, 11 U.S.C. § 523(a)(8) makes discharge of a student loan quite difficult, i.e., bankrupt must show “undue hardship on the debtor and the debtor’s dependents.”
Section 108(f)(1) of the I.R.C. excludes doi income from a taxpayer’s gross income when “discharge was pursuant to a provision of such loan under which all or part of the indebtedness of the
individual would be discharged if the individual worked for a certain period of time in certain professions for any of a broad class of employers.” What should be the effect of these
- What reasons might support treating receipt of loan proceeds as gross income and treating repayment of the loan as deductible? What would be the effects on the economy?
- You have seen that various types of loans fall within § 108 and are therefore subject to the favorable treatment that that section provides. Are there others? Some argue that
any forgiveness of a student loan should be excluded from gross income. Do you agree?