New York financial corporation lobbies Congress

For immediate release

New York financial corporation lobbies Congress to remove unfair tax on loan modifications

Income tax law makes federal government complicit in home foreclosures

A federal income tax law on loan modifications is making lenders and investors pay taxes for income they have not received.

The law says any time loans like mortgages are modified, the projected income may be subject to income tax. The tax has to be paid even though the modified loan has not generated the income being taxed. This is “phantom income.” The law is Title 26 of the IRS Code, 1.1001-3 .

“This law hinders the process of negotiation. The thought that the investor is already liable for income considered phantom is something which need to be seriously looked into and, in fact, changed,” said Ricky Brava, senior partner with Apollo Financial Group. Apollo Financial is lobbying Congress to change this law. “This law is hindering the reinvestment that will help turn the economy around.”

Apollo is not objecting to taxes. The company is objecting to paying taxes on income that has not actually been received.

“Taxes are a necessary vehicle to generate revenue for the government in order to create a healthy and stable society. However, when the tax code is structured in such a manner where it prevents individuals or entities from doing the right thing, then it is the duty of the people to bring it up to the proper officials,” said Apollo Financial Group President Dean Anastos.

EXPLAINING THE PROBLEM

Apollo buys and sells distressed financials, chiefly mortgages, at a discount. Apollo and its clients can then lower the loanʼs principal. The income tax problem comes about when the loan is modified.

“When the terms of the loan are ʻsubstantiallyʼ modified, the acquirer of debt must recognize a ʻgainʼ which equals to the new loan balance minus the cost basis. A tax bill on ʻphantom incomeʼ is generated without a single dollar of revenue and this tax is immediately due,” Mr. Anastos said.

To explain in a simple example, Apollo buys a $100,000 mortgage for $50,000. Apollo then modifies the loan to $75,000. Under Title 26, the IRS considers that $25,000 difference between the $50K and the $75K to be income and subject to immediate tax.

“When the loan is modified, the homeowner benefits from lower payments. But the law says that $25,000 is an immediate income and must be taxed. Thatʼs money that has not been received and may never be received. The law allows the IRS to tax phantom income. Thatʼs just wrong,” Mr. Brava said.

LAW PUSHES FORECLOSURES

No other law taxes potential income. Mr. Anastos said this law makes the federal government a partner in home foreclosures. A persons who might buy a mortgage in danger of being foreclosed might not do so knowing he will have to pay taxes on phantom income, he said.

“The way the tax code is written regarding taxation of loan modifications on acquired debt, it is a wiser business decision for a debt holder to foreclose on an American homeowner rather than offering a loan modification,” Mr. Anastos said. “The government, through the tax code, is inadvertently complicit in sending homeowners to foreclosure.”

He provided this example:

“When a bank collapses, another bank acquires the defuncts banks mortgage portfolio. The acquiring bank may consider reducing the principal and interest rate on a borrowerʼs mortgage,” he said. “Now, the acquiring bank is required to pay income tax when modifying the homeowners loan. Because of this accounting departments often advise the banks to foreclose, because the sale of the home post-foreclosure would bring in revenue to cover the tax bill.”

If this phantom income tax law did not exist, refinancing mortgages would be far more commonplace and foreclosures would drop, Mr. Brava said.

“When a distressed debt investor is willing to work with American homeowners and negotiate better terms so they can stay in their homes, the investors should not be taxed on the amount he forgave but should be rewarded as he is helping keep the American Dream of home ownership alive,” he said. The two men encouraged other people to lobby Congress to overturn this law so more people can stay in their homes.

“This is about keeping the American Dream alive and healthy,” Mr. Anastos said.

ABOUT APOLLO – As of June 30, 2012 Apollo Financial had cash and cash equivalents of $11.9 million with approximately $105 billion of assets under management. Apollo buys and sells distressed debts. These mortgage notes for sale are offered to a list of clients. For more information visit www.ApolloFinancialGrp.com or call 866 825 9350.

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