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Get your taxes done using TurboTax
@jomo13 wrote:
Hi again,
Thanks for the advice.
I actually ended up reaching out to another CPA who seemed knowledgeable. His response was:
Since the car was put in the friend’s name, that he did not receive a gift that is reportable. The CPA sees it as I received a loan and repaid the loan with the transfer of the vehicle. He also said I could file the Form 3520 which he do not believe creates any tax implication, it is more of a disclosure form. And said as long as I had no benefit from the transaction (I didn't, in fact, it's been more of an annoyance), he would probably not consider reporting.
Thoughts?
It's an interesting thought, and I agree it would be a reasonable way of looking at the transaction. My endorsement is, of course, worth exactly what you are paying me. 😉
One thing the CPA did not mention that applies to your friend. If this was a loan from your friend to you, your friend is required to charge interest, and pay income tax on the interest received. If they didn't actually charge interest, they are still required to report the income they would have received if they had charged at least a fair market rate. This is called imputed interest, and there is an article about it here.
https://turbotax.intuit.com/tax-tips/tax-payments/irs-tax-rules-for-imputed-interest/L7UbulHpC
The minimum fair market rates are listed here.
https://www.irs.gov/applicable-federal-rates
For example, a short term loan with monthly interest that was made in April 2023 has a minimum rate of 4.75%. If we look at this as you borrowing $26,000 and paying the loan back with a car, and the transaction took 2 months to settle, the interest would have been $206. Your friend would report receipt of $206 as taxable interest income, which would result in around $50 of extra income tax, depending on their other income.
I'm not saying your friend must do this, I'm pointing it out as a rule that exists (if this was a loan).
The interesting thing about form 3520 is that the instructions say to file the form if you received from a foreign corporation more than the annual exclusion amount (which is $17,339 for 2023). However, the form itself says to report amounts "that you treated as gifts." If this is being treated as a loan, it would seem form 3520 is not required.
I also agree that form 3520 is a reasonable suggestion, since you received (even as a loan), more than $17,000.