AutoMarketplace NYC

Share this post

🤔 Is Taxi Medallion Debt Forgiveness A Taxable Event?

automarketplace.substack.com

Discover more from AutoMarketplace NYC

NYC Taxi & Auto News 🗽🚕🚗
Over 1,000 subscribers
Continue reading
Sign in

🤔 Is Taxi Medallion Debt Forgiveness A Taxable Event?

It's unclear whether taxi medallion debt forgiveness would be a taxable event. Definitive guidance hasn't been given on whether medallion owners would face large tax bills related to a debt workout

AutoMarketplace NYC
Sep 29, 2022
1
Share this post

🤔 Is Taxi Medallion Debt Forgiveness A Taxable Event?

automarketplace.substack.com
Share

AutoMarketplace.com NYC covers the for-hire transportation industry and automotive news. Check out AutoMarketplace.com on YouTube ▶️


⚠️ DISCLAIMER: This article should NOT be taken as legal or financial advice but rather a presentation of our thoughts, research and findings on whether taxi medallion debt forgiveness could trigger a tax obligation.


With the official passage of the Medallion Relief Program (MRP) for those that have loans with Marblegate, the largest medallion lender, it got us thinking about something.

Is taxi medallion debt forgiveness a taxable event? 🤔

This dynamic might surprise people but, to be simple, reducing one’s debt via a lender writedown can technically be viewed as a lender paying someone (their own borrower in this case) to pay off part of their debt. Therefore it can be viewed as taxable income.

In fact, this very topic recently surprised many, as it related to President Biden’s recent federal student debt forgiveness announcement. In some States it was determined it would not be treated as taxable income, while it’s unclear in others. Anyone who’s lived in New York State for more than a minute can probably guess which side of the “taxable” or “not taxable” fence the State tends to default to.

However, to be fair, it does appear New York State politicians can even recognize that taxing student debt forgiveness might not sit well with much of the voting public.

Twitter avatar for @bradhoylman
Senator Brad Hoylman @bradhoylman
New York State shouldn’t receive a windfall on the backs of low and middle-income student borrowers ⬇️ I’m introducing legislation today to exempt @POTUS #studentloanforgiveness from state taxation
Twitter avatar for @NBCNewYork
NBC New York @NBCNewYork
Some states, including New York, may count the canceled debt as income, tax experts say. https://t.co/Oo4EYmbmBP
2:54 PM ∙ Aug 29, 2022
191Likes28Retweets
Twitter avatar for @bradhoylman
Senator Brad Hoylman @bradhoylman
I’m thrilled to be partnering with @SenGianaris on this new legislation introduced today to exempt @POTUS #studentloanforgiveness from NY State taxes 👇👇👇 nysenate.gov/newsroom/press…
nysenate.govSenate Deputy Leader Gianaris: Student Debt Forgiveness Shouldn’t Be Taxed By State; Will Introduce New Bill To Make Sure Relief Not Treate…NEW YORK, N.Y. – Senate Deputy Leader Michael Gianaris announced new legislation that would exempt student loan forgiveness from being subject to state income taxes. Currently, state law could treat any student loan forgiveness as taxable income. New York is one of thirteen states that treats studen…
9:37 PM ∙ Aug 29, 2022

Is Taxi Medallion Debt Forgiveness Taxable?

Similar to the student debt forgiveness situation outlined above, taxi medallion loan forgiveness presumably would need some official clarification(s) from tax authorities on whether it’s taxable or not 🤷‍♀️. Remember, if State & Federal tax authorities determine that medallion debt forgiveness is taxable that could result in large one-off tax bills for many medallion owners.

A simplistic illustrative example could look like this.

$500,000 of medallion debt reduced to $170,000 medallion debt. Would that mean an individual would need to report $330,000 of one-off taxable income?!

Our Current Understanding & Political Action

Unless a clear determination exists that has eluded our research (very possible), at the moment, it seems like there is A PROPOSAL (NOT PASSED) in front of the federal government, that would ensure debt forgiveness related to taxi medallions would not be treated as taxable income.

Source: PoliticsNY

“Congressman Gregory W. Meeks (D-Queens), with support from the entire city’s Congressional delegation, elected state and city leaders, the New York Taxi Workers Alliance, and Signature Bank, on Friday announced federal legislation that, if passed, will ensure taxi medallion owners are not taxed for debt forgiveness.”

PoliticsNY (January 21, 2020)

H.R. 2077 was reintroduced in March 2021, but has not yet passed.

“This bill removes the obstacle of a high tax liability, making way for our members to achieve real debt forgiveness.”

- Bhairavi Desai, Executive Director of the New York Taxi Workers Alliance

“It would be tragic if, in the course of working with lenders to draw down debt, these owners get walloped with a tax bill on top of everything else.”

- Ron Sherman, President of the Metropolitan Taxicab Board of Trade

H.R.2077 - Taxi Medallion Loan Forgiveness Debt Relief Act of 2021 (Introduced NOT Passed)

Source: Congress.gov

American Bankruptcy Institute (ABI) Piece on Taxi Medallion Debt Forgiveness

Interestingly enough, the American Bankruptcy Institute (ABI) published a very relevant case study on NYC taxi medallion debt forgiveness and taxable income implications. The case mentioned in the article is imperfect in that it involved the medallion owner surrendering the medallion to the bank. Long story short, IT’S UNCLEAR if taxi medallion debt forgiveness would be treated as taxable income.

“IRC § 108 provides that if an individual or an entity is relieved of indebtedness, then that indebtedness is deemed to be ordinary income to the debtor or taxpayer, and they must report that income on their tax return. There are two exceptions to this rule; first, if the taxpayer/debtor files for bankruptcy protection, then the relief of indebtedness income is not picked up; and second, on a balance sheet basis, if the individual’s liabilities exceed their assets and they are insolvent, then they do not have to pick up the income.

In many of our taxi medallion workouts, we engage in the workout to avoid a personal bankruptcy filing by the taxi medallion owner, so the bankruptcy filing exception to IRC § 108 does not apply.”

- American Bankruptcy Institute (ABI)

To be clear, none of the above should be taken as legal or financial advice but rather a presentation of our thoughts, research and findings on whether taxi medallion debt forgiveness could trigger a tax obligation. One could reasonably assume if a Congressional Bill is specifically being proposed to definitively exclude taxi medallion debt forgiveness as a taxable event, then the current law is unclear on the matter.

Twitter avatar for @NYTWA
NY Taxi Workers @NYTWA
What $1,027,000 in forgiveness looks like in 1 photo. #EndCabbieDebt #1u
Image
4:10 PM ∙ Sep 19, 2022
85Likes19Retweets

As always, let us know your thoughts in the comments section below or by emailing us at info@automarketplace.com.


AutoMarketplace.com NYC covers the for-hire transportation industry and automotive news. Check out AutoMarketplace.com on YouTube ▶️

1
Share this post

🤔 Is Taxi Medallion Debt Forgiveness A Taxable Event?

automarketplace.substack.com
Share
Previous
Next
Comments
Top
New
Community

No posts

Ready for more?

© 2023 Auto Marketplace LLC
Privacy ∙ Terms ∙ Collection notice
Start WritingGet the app
Substack is the home for great writing