🚀 go-pugleaf

hi all,

after getting my refund request rejected for one of the years i applied
for, and spending much time discussing the situation with a tax lawyer
friend of mine, I have the following report.

There is good news and there is bad news. first the bad news.


Looking at the whole picture we've concluded that probably no one should
get any tax refunds at all. IRS pub 520 does not say that stipends with a
payback agreement aren't taxable. neither does it say that a payback
agreement is a loan. it does say that a LOAN that is forgiven because of a
service is not taxable. the laws that this publication is based on say the
same thing. In order to take advantage of this we need to demonstrate that
our stipend becomes a loan due to the payback agreement.

My friend and I were unable to find a way to do this. Although the
defination of a loan is fuzzy, it seems the primary intention must be for
the loan to be repaid in cash. in our case the primary intention is for us
to repay in services. If anyone can bring down any laws to the contrary
that would be nice. But it has to be actual legal text or case law. while
there are all kinds of fun philosophical debates to be had on what is the
difference between a loan and a salary, this is the IRS we are dealing with.

In any case, it is up to the IRS to decide whether it is a loan or not.
Since so many people have gotten refunds maybe they do think it is loan.


The good news...

In all the rejection letters I've heard of the reason for rejection has
had nothing to do with the above. the reason has been that the stipend is
a 'payment for services'. This is total nonsense.

In the 70's this is the position the IRS held. they said that since we
signed the payback agreement the stipend was a payment for services and
they tried to tax us on the stipend back when the entire stipend was
non-taxable (before 1986). This position is outlined in IRS Rev. Rul.
77-319, 1977-2 C.B. 48.

Fortunately, after presuure from congress etc. the IRS changed this and
explicitely said that a NRSA is not payment for services. this occurred in
Rev. Rul. 83-93, 1983-1 CB 364  which says that rev rul 77-319 is obsolete.

Therefore our NRSA are not payment for services. of course in 1986 they
became taxable anyway, as stipends, but rev. rul 83-93 still applies. They
are taxable because they are stipends, they still aren't payment for services.



Conclusion: I've decided not to appeal, but to just take the money i got
and not risk calling attention to it a risking an audit or something.
For someone who got rejected completely or wants to risk appealing (my
friend said the risk of drawing an audit is very small, but not zero) i
suggest the following.


write a short letter saying something like this....


you rejected my claim , stating that the NRSA is a 'payment for services'.
this was the position held by the IRS in Rev rul 77-319 (etc). But in Rev
Rul 83-93 (etc) the IRS determined that this was not so, and declared
77-319 obsolete. Thus, since the NRSA is not a 'payment for services' your
grounds for rejection are untenable. Therefore please forward my refunds
as per my original amended return as soon as possible.


and let me know what happens.


---

Seth L. Ness                         Ness Gadol Hayah Sham
ness@aecom.yu.edu
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