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Wednesday, December 13, 2006

College Student Gets Mother-in-Law to Co-Sign $10,000 Loan to Buy Apple Computer, Has $7,800 DOI Income When He Repays Only $2,200 After Taking High-Paying Job at Microsoft

Tax_court_3 Interesting Tax Court decision released this afternoon:  Schachner v. Commissioner, T.C. Summ. Op. 2006-188:  Husband attended a local community college and borrowed $10,030 from the school to buy an Apple computer.  At his request, his Mother-in-Law applied for the loan on his behalf, and both signed the note and agreed to be jointly and severally liable.  Husband and Wife later filed for bankruptcy.  Although the outstanding $7,800 balance on the loan was not discharged in the bankruptcy proceeding, it was written off by the lender.  The Tax Court upheld the Service's characterization of the $7,800 as discharge of indebtedness income, and noted in a footnote:

The Court finds it worth noting that, although he never finished his degree, Mr. Schachner has been employed with Microsoft Corp. since 1999 and earns a substantial salary, no doubt due in part to this education.

Two questions:

  1. How in the world did an Apple computer cost $10,000?
  2. How did Husband convince Mother-in-Law to co-sign the note?

http://taxprof.typepad.com/taxprof_blog/2006/12/tp_borrows_10k_.html

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Comments

I wanted to know why the debt was non-dischargeable in the bankruptcy. From reading the opinion, it was characterized as a student loan debt, and therefore non-dischargeable until at least seven years went by. As a student loan, it might also be that the loan included more just the purchase of the computer.

Posted by: Greg Jones | Dec 15, 2006 7:55:27 AM