Law Commons^™

Debt And Taxes, David Hasen

UF Law Faculty Publications

The federal income tax conceptualizes the standard loan transaction as an exchange of cash for promises to pay interest and to repay the amount borrowed by the term. This formulation is subtly wrong in ways that have led to a weaker foundation for existing tax rules than they merit. Conceptualizing loans instead as closely akin to leases places most of the tax rules for debt on sounder footing because it clarifies that the consideration paid for the use of the loan proceeds is interest. If interest is the cost of the use of money, then simple borrowing is a fully-paid-for …