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Wrap-up Questions for Chapter 4

29 July, 2015 - 16:31
  1. What is wrong with the shrinkage of assets doctrine? Why should a loan and the use of loan proceeds be treated as separate transactions?
  2. 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.
  3. 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 provisions?
  4. 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?
  5. 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?