Secured creditor vs. IRS

[Dewey]

What is the name of your state (only U.S. law)? Arizona


So I've posted about my thieving BIL who fraudulently obtained a line of credit jointly with my husband (without my husband's knowledge or consent) in 2004. Our first knowledge of this LOC was last fall when BIL defaulted and we got the demand letter to pay in full. Police report was filed.

BIL owed us for other defaulted creditors that were legitimate earlier in the year.

The grand total we had to pay out last year to preserve our credit for these debts was $22,828.

The entire debt is over $34,000 (there are still some open accounts which we are either disputing or paying). We have since gotten a civil attorney and drafted up a Deed of Trust and Promissory Note. He will pay 10% interest on the entire amount. So tax issues for 2009 shouldn't be a problem.

I'm now concerned about our 2008 taxes. I've read about imputed interest and the fact that BIL has received the benefit of this "loan" interest-free and tax-free for 2008
I also read where we can include in our taxes an "uncollectible loan" which will alert the IRS to BIL since he reaped the benefit of the tax-free loan that would be interpreted as a gift from us. We certainly don't want any tax liability slapped on us for this debt to add insult to injury. Is this our only option?

BIL has BIG IRS issues. One of the reasons we were so easily able to obtain a Promissory Note and Deed of Trust was because he wanted to avoid civil court where he would have had to open his books.

Which leads me to my next question, about prioritization of federal tax liens vs. secured creditors. If the IRS is alerted to him before he pays this off and they come after him--will they take priority over us as secured creditors?

 

[davew128]

I strongly advise getting local professional help. There are way too many moving parts to get anonymous internet help with, not to mention there are likely considerations of applicable local law that need to be sorted through.

 

[Dewey]

I strongly advise getting local professional help. There are way too many moving parts to get anonymous internet help with, not to mention there are likely considerations of applicable local law that need to be sorted through.

Oh, we will certainly be getting professional tax help on this. I certainly wouldn't rely on internet information or opinions on something like this.

I just thought of this today and started surface research and thought I might be able to get a quick and dirty answer to satisfy my curiosity.

We won't file until April 15th, so we've got some time.

 

[LdiJ]

Oh, we will certainly be getting professional tax help on this. I certainly wouldn't rely on internet information or opinions on something like this.

I just thought of this today and started surface research and thought I might be able to get a quick and dirty answer to satisfy my curiosity.

We won't file until April 15th, so we've got some time.

If the IRS has put a lien/levy against his assets first, then even if you are a secured creditor you are second in line.

 

[Dewey]

If the IRS has put a lien/levy against his assets first, then even if you are a secured creditor you are second in line.

Yes, I know. The thing is, the IRS isn't aware of him yet. We're already second in line behind their mortgage company.

It's going to take him forever to pay off this debt unless he sells his house. In the meantime, it's possible the IRS will become aware of him and put a lien against his assets.

I just want to be sure we won't be bumped from our position since there is no federal tax lien yet.