Paul L. Caron

Wednesday, November 14, 2012

Report Blasts $4.65 Million in Forgivable Loans to Texas Law Profs

TexasFollowing up on my prior posts (links below): Austin American-Statesman: End Forgivable Loans to UT Law Professors, Report Urges:

A forgivable loan program benefiting law professors and a former law dean at the University of Texas raises legal concerns and should be permanently ended, according to a report by the UT System and a review of that report by the state attorney general’s office. The American-Statesman obtained copies of the documents under the Texas Public Information Act.

The UT System report was especially critical of the former dean, Larry Sager, who remains on the faculty of the School of Law and who, while dean, sought and received a $500,000 forgivable loan from the UT Law School Foundation.

Prior TaxProf Blog coverage:

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It was generally rumored among the student body that certain significant professors were lured by such sweetheart deals.

Posted by: Mick | Nov 15, 2012 9:14:21 AM

Are forgivable loans deemed taxable income if and when forgiven? I hope so.

Posted by: jim sweeney | Nov 15, 2012 8:52:35 AM

A forgivable loan comes with a put option. That put option has a price. I'll leave it to someone else to estimate the value of such an option.

Posted by: GPH | Nov 15, 2012 8:38:48 AM

If the loan becomes unenforceable under the applicable local law, it could be considered forgiven -- especially in the employment context. This should be easy pickings for the Austin IRS office.

Posted by: TexEcon | Nov 15, 2012 8:09:07 AM

If no decision is made, then the loan is still considered a good loan and there is no taxable income. If, on the other hand, the Service were to audit and find there is no practical likelihood of repayment, the Service could disallow it then and there. That, however, is unlikely.

Posted by: David Smith | Nov 15, 2012 7:08:48 AM

A forgivable loan is taxable once it is formally forgiven, but not any sooner, right? What if no decision is ever made whether or not to forgive the loan-- when is the tax due?

Posted by: Robert Gould | Nov 14, 2012 3:29:00 PM