Taxpayers Contribute Millions of Dollars To Democrat's Convention

[B-Man]

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Nothing much surprises me about the perpetual campaign of this administration, but I am surprised no one has brought up Obama's marketing of the $500,000 private seat licenses to get his ear.

 

See the "L" word thread.

[ICanSleepWhenI'mDead]

Writing off a bad debt expense is perfectly legal. . . .

A few questions that I don't know the answers:

 

1. Since the borrowed funds were originally supplied to the democratic host committee by 2 local Charlotte banks, and only guaranteed by Duke Energy, does that still qualify as a deductible bad debt expense for Duke Energy?

 

2. Is it a deductible bad debt expense only if Duke Energy makes some effort to actually recover the money? Because if Duke Energy makes no such effort, couldn't the IRS say that a gift was the true intent, which would not fall under the same tax deduction rules as a true loan?

 

3. If some effort to recover the money is required for Duke Energy to legitimately claim a bad debt expense deduction, is it enough if Duke Energy simply asks for repayment and gets ignored?

 

4. Is there any scenario in which the IRS can look past the structure of the funding arrangement and claim that Duke Energy and the host committee always intended that the money never be repaid to Duke Energy, thereby negating treatment as a "bad debt expense?"

 

If an outright contribution by Duke Energy to the host committee is not tax deductible, I'd be concerned that the guarantee arrangement was an artifact to get more favorable tax treatment than an outright gift by Duke Energy. I'm pretty sure that where loans by individuals are concerned, there are some situations where the IRS can look past the structure of a loan and treat it as a gift if there was never any intention for the loan to be repaid. Why should it be different for Duke Energy?

 

But again, I just have questions here, not answers.

 

But if you're Duke, you could sue them in an expensive case to try to get the money back, but why do that when you do have a financial obligation to shareholders, and can easily write it off at no additional expense to yourself?

Because a bad debt expense only creates a deduction, not a dollar-for-dollar credit. So "writing it off" DOES involve additional expense (as compared to getting full repayment of the funds).

[GG]

It's not that difficult of a concept. DNC borrows from the banks, Duke guarantees the debt. DNC can't repay the banks, so the banks go to Duke to collect on the guarantee. Duke pays up. Duke goes back to DNC to collect. DNC says, shove off, we don't have the cash. Duke is out $10 million and writes off the payment as a bad debt expense.

 

If regulators or IRS want to look at the transaction after the fact, they can. But as written, the transaction is perfectly legal.

Edited March 5, 2013 by GG

[3rdnlng]

It's not that difficult of a concept. DNC borrows from the banks, Duke guarantees the debt. DNC can't repay the banks, so the banks go to Duke to collect on the guarantee. Duke pays up. Duke goes back to DNC to collect. DNC says, shove off, we don't have the cash. Duke is out $10 million and writes off the payment as a bad debt expense.

 

If regulators or IRS want to look at the transaction after the fact, they can. But as written, the transaction is perfectly legal.

 

Perfectly legal, but morally reprehensible if they write off their bad debt expense and cause the taxpayer to pay for a share of the dem's convention.

[GG]

Perfectly legal, but morally reprehensible if they write off their bad debt expense and cause the taxpayer to pay for a share of the dem's convention.

 

Where do you make the leap from shareholder to taxpayer? Duke could have just as easily spent the $10 million in marketing expenses at the convention without guaranteeing the loan and that would have been a valid business deduction as well.

 

The only nefarious thing that this could lead to is if there was a wink & nudge between DNC and Duke that the loan would never be repaid, and that would be outrageous.

Edited March 5, 2013 by GG

[3rdnlng]

Where do you make the leap from shareholder to taxpayer? Duke could have just as easily spent the $10 million in marketing expenses at the convention without guaranteeing the loan and that would have been a valid business deduction as well.

 

The only nefarious thing that this could lead to is if there was a wink & nudge between DNC and Duke that the loan would never be repaid, and that would be outrageous.

 

Duke Energy pays a corporate tax, right? I guess if they didn't there would be no reason for using the bad debt as a deduction. If they pay less taxes it causes the federal government to borrow more. That puts more debt on the public, with the effect that the taxpayer is paying part of the dem's convention. Do you actually think that the DNC is just stiffing Duke without there being an understanding beforehand?

[ICanSleepWhenI'mDead]

It's not that difficult of a concept. DNC borrows from the banks, Duke guarantees the debt. DNC can't repay the banks, so the banks go to Duke to collect on the guarantee. Duke pays up. Duke goes back to DNC to collect. DNC says, shove off, we don't have the cash. Duke is out $10 million and writes off the payment as a bad debt expense.

 

If regulators or IRS want to look at the transaction after the fact, they can. But as written, the transaction is perfectly legal.

It's not as simple as you claim:

 

http://www.irs.gov/publications/p535/ch10.html

 

Types of Business Bad Debts

 

[/url]

Business bad debts may result from the following.

Loans to clients and suppliers. If you loan money to a client, supplier, employee, or distributor for a business reason and you are unable to collect the loan after attempting to do so, you have a business bad debt.

 

Debts owed by political parties. If a political party (or other organization that accepts contributions or spends money to influence elections) owes you money and the debt becomes worthless, you can claim a bad debt deduction only if all of the following requirements are met.

1. 
   You use the accrual method of accounting.
   
2. 
   The debt arose from the sale of goods or services in the ordinary course of your trade or business.
   
3. 
   More than 30% of your receivables accrued in the year of the sale were from sales to political parties.
   
4. 
   You made substantial and continuing efforts to collect on the debt.
   

 

Loan or capital contribution. You cannot claim a bad debt deduction for a loan you made to a corporation if, based on the facts and circumstances, the loan is actually a contribution to capital.

 

<a name="en_US_2011_publink1000154192">Debts of an insolvent partner. If your business partnership breaks up and one of your former partners becomes insolvent, you may have to pay more than your pro rata share of the partnership's debts. If you pay any part of the insolvent partner's share of the debts, you can claim a bad debt deduction for the amount you paid that is attributable to the insolvent partner's share.

Business loan guarantee. If you guarantee a debt that subsequently becomes worthless, the debt can qualify as a business bad debt if all the following requirements are met.

 

 

• 
  You made the guarantee in the course of your trade or business.
  
• 
  You have a legal duty to pay the debt.
  
• 
  You made the guarantee before the debt became worthless. You meet this requirement if you reasonably expected you would not have to pay the debt without full reimbursement from the borrower.
  
• 
  You received reasonable consideration for making the guarantee. You meet this requirement if you made the guarantee in accord with normal business practice or for a good faith business purpose.
  

Loans made directly to political parties clearly have additional requirements that must be met before failure to repay can be written off as a bad business debt. Here, the loan was made to the "host committee" of a political party. Even if that technically isn't the same thing as a loan made to the political party itself, the host committee seems to fall within the definition of "other organization that accepts contributions or spends money to influence elections"

 

So can Duke Energy avoid those extra requirements by structuring things as a guarantee rather than an outright loan, because there is no specific language imposing the extra requirements on guarantees made in favor of political parties? Seems pretty slimey to me.

 

And even if Duke Energy surmounts that hurdle, Duke Energy can still only deduct the $ if it "made the guarantee in accord with normal business practice or for a good faith business purpose." Duke Energy's statements that it made the guarantee to help promote the local economy may be an attempt to demonstrate a "good faith business purpose."

 

Given the extra requirements for deducting unrepaid loans to political parties as bad business debts, it's not clear to me that the transaction is "perfectly legal as written," just because they structured it as a guarantee (even assuming that Duke Energy initially had an honest expectation that the host committee would repay the loan in full).

[3rdnlng]

It's not as simple as you claim:

 

http://www.irs.gov/p.../p535/ch10.html

 

Loans made directly to political parties clearly have additional requirements that must be met before failure to repay can be written off as a bad business debt. Here, the loan was made to the "host committee" of a political party. Even if that technically isn't the same thing as a loan made to the political party itself, the host committee seems to fall within the definition of "other organization that accepts contributions or spends money to influence elections"

 

So can Duke Energy avoid those extra requirements by structuring things as a guarantee rather than an outright loan, because there is no specific language imposing the extra requirements on guarantees made in favor of political parties? Seems pretty slimey to me.

 

And even if Duke Energy surmounts that hurdle, Duke Energy can still only deduct the $ if it "made the guarantee in accord with normal business practice or for a good faith business purpose." Duke Energy's statements that it made the guarantee to help promote the local economy may be an attempt to demonstrate a "good faith business purpose."

 

Given the extra requirements for deducting unrepaid loans to political parties as bad business debts, it's not clear to me that the transaction is "perfectly legal as written," just because they structured it as a guarantee (even assuming that Duke Energy initially had an honest expectation that the host committee would repay the loan in full).

 

Aren't you confusing legal with deductible here?

[GG]

It's not as simple as you claim:

 

http://www.irs.gov/p.../p535/ch10.html

 

Loans made directly to political parties clearly have additional requirements that must be met before failure to repay can be written off as a bad business debt. Here, the loan was made to the "host committee" of a political party. Even if that technically isn't the same thing as a loan made to the political party itself, the host committee seems to fall within the definition of "other organization that accepts contributions or spends money to influence elections"

 

So can Duke Energy avoid those extra requirements by structuring things as a guarantee rather than an outright loan, because there is no specific language imposing the extra requirements on guarantees made in favor of political parties? Seems pretty slimey to me.

 

And even if Duke Energy surmounts that hurdle, Duke Energy can still only deduct the $ if it "made the guarantee in accord with normal business practice or for a good faith business purpose." Duke Energy's statements that it made the guarantee to help promote the local economy may be an attempt to demonstrate a "good faith business purpose."

 

Given the extra requirements for deducting unrepaid loans to political parties as bad business debts, it's not clear to me that the transaction is "perfectly legal as written," just because they structured it as a guarantee (even assuming that Duke Energy initially had an honest expectation that the host committee would repay the loan in full).

 

Look, I know your posting history from thew drivel that you post in the Bills moving to Toronto crap, that despite contrary evidence you insist that Ted Rogers will rise from the grave and give orders to people with no money and no NFL ready stadium in the city to move the franchise there. So I'll treat this response in that vein.

 

There is nothing that you "unearthed" in the quotes above that would not make this an invalid guarantee and Duke is within its right to claim a deduction on the now worthless debt.

[ICanSleepWhenI'mDead]

Aren't you confusing legal with deductible here?

I was talking about the legality of Duke Energy's decision to claim a business deduction in my most recent post, not the legality of the transaction itself. I don't think the Democratic Party host committee or anyone else did anything illegal when the loan and guarantee were first made, but I think it's debatable whether Duke Energy's decision to deduct its financial loss as a business expense is legitimate. I'll explain more about why I feel that way in my next post - - but that's gonna need to wait a bit.

 

Edit: Let's change "in my next post" to "soon." I have some other business to attend to first.

Edited March 5, 2013 by ICanSleepWhenI'mDead

[ICanSleepWhenI'mDead]

Look, I know your posting history from thew drivel that you post in the Bills moving to Toronto crap, that despite contrary evidence you insist that Ted Rogers will rise from the grave and give orders to people with no money and no NFL ready stadium in the city to move the franchise there. So I'll treat this response in that vein.

 

There is nothing that you "unearthed" in the quotes above that would not make this an invalid guarantee and Duke is within its right to claim a deduction on the now worthless debt.

Setting aside the "drivel" and "crap" remarks for the moment, I want to make sure I understand why you believe that Duke Energy can deduct its financial loss as a worthless bad debt. We probably agree that when the host committee failed to repay the loan made by the banks, Duke Energy was required to repay the loan because of its guarantee. Are you suggesting that after Duke Energy repaid the bank loan, that the host committee somehow owed a debt to Duke Energy? The host committee never borrowed any money from Duke Energy, so why do you believe that Duke Energy is owed a debt by the host committee? And unless you're some bigshot tax lawyer, why should I believe that you know what you're talking about?

[GG]

Setting aside the "drivel" and "crap" remarks for the moment, I want to make sure I understand why you believe that Duke Energy can deduct its financial loss as a worthless bad debt. We probably agree that when the host committee failed to repay the loan made by the banks, Duke Energy was required to repay the loan because of its guarantee. Are you suggesting that after Duke Energy repaid the bank loan, that the host committee somehow owed a debt to Duke Energy? The host committee never borrowed any money from Duke Energy, so why do you believe that Duke Energy is owed a debt by the host committee? And unless you're some bigshot tax lawyer, why should I believe that you know what you're talking about?

This is not a tax issue between Duke and DNC, it's a legal issue. Duke had a business reason to guarantee the loan that passed their lawyers and accountants. When DNC defaulted on the loan and Duke paid up, the unpaid obligation moved from banks to Duke Energy. They now have the right to collect that debt.

[ICanSleepWhenI'mDead]

This is not a tax issue between Duke and DNC, it's a legal issue. Duke had a business reason to guarantee the loan that passed their lawyers and accountants. When DNC defaulted on the loan and Duke paid up, the unpaid obligation moved from banks to Duke Energy. They now have the right to collect that debt.

. . . Duke is within its right to claim a deduction on the now worthless debt.

Thanks. That made your position clear about why you believe that Duke Energy can now deduct the host committee's owed but unpaid debt on Duke Energy's corporate income tax returns - - the only part I disagree with is the legitimacy of Duke Energy's income tax deduction. I'm still not sure why I should believe that you know what you're talking about. You didn't claim to be a bigshot tax lawyer when prompted, but see a legal issue here. Most hammers see nails (and most surgeons cure everything by cutting), so maybe you're a "smallshot" business lawyer that knows a thing or two about tax issues?"

[ICanSleepWhenI'mDead]

Hey GG,

 

Up-thread, you accused me of posting "drivel" and "crap." When I asked you why I should believe that you know what you're talking about on the Duke Energy tax deduction issue, you refused to answer, and specifically stated in "The Drones Are Coming" thread that you were refusing to answer because I'm a troll.

 

As I mentioned above, I don't know a lot about corporate tax accounting. But you know what? An Internet search engine is a powerful tool. It's like having the Library of Congress in your basement. So let's review what you've posted in this thread, and then take a look around the web to see if it stands up to scrutiny. Maybe we can figure out who's really posting "crap." Maybe it's me, for suggesting that there was at least a possibility that Duke Energy's tax deduction wasn't legitimate.

 

This is not a tax issue between Duke and DNC, it's a legal issue. Duke had a business reason to guarantee the loan that passed their lawyers and accountants. When DNC defaulted on the loan and Duke paid up, the unpaid obligation moved from banks to Duke Energy. They now have the right to collect that debt.

. . . Duke is within its right to claim a deduction on the now worthless debt.

 

So can corporations deduct worthless debts as a business expense? Let's try a google search, and see what we can find:

 

http://www.lmgtfy.co...rty as bad debt

 

Turns out there's a federal law ("section 166") that says, in most situations, they can:

 

http://codes.lp.find...26/A/1/B/VI/166

 

(a) General rule

(1) Wholly worthless debts

There shall be allowed as a deduction any debt which becomes

worthless within the taxable year.

 

So far, it looks like you do know a thing or two about corporate tax accounting. Problem is, there's more than a couple things you need to know. If you read the rest of the statute from the same link, you find this little gem:

 

(f) Cross references

(1) For disallowance of deduction for worthlessness of debts

owed by political parties and similar organizations, see

section 271.

 

So let's take a look at section 271 of the law, and see if there's a different rule for worthless debts of "political parties and similar organizations:"

 

http://law.justia.co....1.0.5.196.html

 

§ 1.271-1 Debts owed by political parties.

 

(a) General rule. In the case of a taxpayer other than a bank (as defined in section 581 and the regulations thereunder), no deduction shall be allowed under section 166 (relating to bad debts) or section 165(g) (relating to worthlessness of securities) by reason of the worthlessness of any debt, regardless of how it arose, owed by a political party.

 

Duke Energy isn't a bank. So in the article linked in the OP, the Duke Energy official who said that Duke Energy could deduct the amount owed to it here as a business expense was a lazy or clueless windbag. Nobody else - - just the Duke Energy guy.

 

Twern't that hard to look up. Roll Tide.

Edited March 8, 2013 by ICanSleepWhenI'mDead

[Jauronimo]

You should probably get some rest.

[BringBackFergy]

*Head spinning....still pissed*