Payments of Interest by Guarantors and Joint Obligors
April 1, 2005
David Blum, a partner in the firm’s Taxation Service Group, wrote an article titled “Payments of Interest by Guarantors and Joint Obligors” which was published in the Journal of Real Estate Taxation in 2005.
As taxpayers worked through the rocky economic times of the last few years, it has become not uncommon for guarantors and joint obligors to find themselves making payments that they had expected other persons to make. Although there is considerable (though, at times, contradictory) authority on the treatment of payments by guarantors, there is surprisingly little authority on the treatment of payments by joint obligors. This article reviews the treatment of payments by guarantors, compares the treatment to the existing authority on payments by joint obligors and makes a recommendation for the treatment of payments by joint obligors.
The characterization of payments made by guarantors and joint obligors can affect the deductibility, the character of the income, the source and the application of withholding rules.