Did not report loan in our old tax returns

[regan87]

What is the name of your state? Florida

In 2015, I loaned my parents around $28,000 when I was around 20 years, going to college, and was a dependent in their tax returns (I was in their tax retuns in 2016 also). I got that money as gift from my grandparents and relatives. My parents paid back that in around a year time, during 2016, with no interest. We did not report this in tax reruns, and we were not even aware that we need to report this in our tax returns. IRS never asked us about this. Recently I testified about this loan in a hearing on a different legal matter with someone else, and the attorney in that legal matter is saying that he will complain to IRS about this, for not reporting the interest in our tax returns. What happens if the attorney complain to IRS, and what can I do to fix this?

 

[Zigner]

What is the name of your state? Florida

In 2015, I loaned my parents around $28,000 when I was around 20 years, going to college, and was a dependent in their tax returns (I was in their tax retuns in 2016 also). I got that money as gift from my grandparents and relatives. My parents paid back that in around a year time, during 2016, with no interest. We did not report this in tax reruns, and we were not even aware that we need to report this in our tax returns. IRS never asked us about this. Recently I testified about this loan in a hearing on a different legal matter with someone else, and the attorney in that legal matter is saying that he will complain to IRS about this, for not reporting the interest in our tax returns. What happens if the attorney complain to IRS, and what can I do to fix this?

The opposing attorney is almost definitely blowing smoke.

 

[LdiJ]

The opposing attorney is almost definitely blowing smoke.

I agree. However, for the sake of discussion lets say that he is not blowing smoke. Lets say that your parents should have paid you interest on the loan and lets say that you should have reported that interest on your tax return.

So, 28k at lets say a 3% interest rate would have meant interest income of $840.00. If you, as a 20 year old were in the 10 Percent marginal tax rate that would have meant income tax of $84.00 at the most and possibly income tax of zero depending on your overall income for that year. Even a 10% interest rate (which the IRS would never impose) is unlikely to result in much, if any, tax.

The bottom line is that the IRS is not going to be interested in investigating someone for potential interest income that could or should have been reported on a one year 28k loan. It's not worth the IRS's time.

 

[adjusterjack]

Even if he does report to the IRS the worst that can happen is you pay some tax and penalty and you're done. Nothing painful per LdiJ.

 

[Taxing Matters]

If you filed your 2016 return by 4/18/2017 (which was the due date for 2016 returns) then there is nothing the IRS may now do about the loan interest even if there might have been some tax due as a result of it. The statute of limitations to assess the tax is three years from the date the return is due or the date the return was actually filed, whichever is later.

 

[regan87]

Thanks for replying back very fast. My parents filed 2016 tax return jointly by 4/18/2017. I was their dependent in that. Based on your replies, I will simply ignore that attorney's possible threats.

 

[LdiJ]

Thanks for replying back very fast. My parents filed 2016 tax return jointly by 4/18/2017. I was their dependent in that. Based on your replies, I will simply ignore that attorney's possible threats.

That is best.