WOULD THIS BE A TAX SCAM?

The Searcher

If a religion loaned out money - interest free - to its followers, would the authorities view the repayments as being taxable?

If so/not, could the religion LEGALLY cancel the debt, and request a donation for the same amount instead, thereby qualifying to claim back tax from the Government, which the donors paid? (in the UK it's called Gift Aid)

Would such an accounting manoeuvre attract the attention of the tax authorities as potential tax evasion?

I know it'll never happen, but I was just wondering!

hoser

Not in canada. Principal repayments are not taxable, nor tax deductable. Interest is Considered income and thus taxable.

Aroq

Searcher,

Good question. I am thinking along the lines of interest payments on a home loan and how that is tax deductiable. The owner of that loan doesn't get it but the buyer does. If the loaner negates it, then the buyer doesn't get it anymore but I do wonder if the loaner gets credit or deductions because of a forgivness?

JeffT

What Hoser said is also applicable in the US. Under US tax regs forgiving a loan can produce a taxable event for the person who owed the money.

skeeter1

As Jeff T said, Cancellation of Indebtedness Income. But, that applies to taxable persons.

In this case, the KH and the mother Borg are charitable organizations. Charities are allowed to earn interest income tax free. However, if the IRS busted the charitable status and made these companies 'private foundations', then the rules change.