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I am trying to understand a paragraph from a tax manual, and for the life of me I can't seem to understand what they are saying. The paragraph in question is from page 4 of publication 4681

The amount of nonrecourse debt in excess of the FMV of the property subject to the nonrecourse debt to the extent nonrecourse debt in excess of the FMV of the property subject to the debt is forgiven.

This is an academic question for me now, rather than something I need to know the legal meaning of. It is the worst piece of double-speak that I have encountered, and I was curious as to what the author was trying to get across.

(The acronym "FMV" stands for "fair market value")

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Hoo boy.

The amount of nonrecourse debt in excess of the FMV of the property subject to the nonrecourse debt to the extent nonrecourse debt in excess of the FMV of the property subject to the debt is forgiven.

Some substitutions:

X = nonrecourse debt
X' = debt
Y = the FMV of the property
Z = Y subject to the X
Z' = Y subject to the X'

This gives us:

The amount of X in excess of Z to the extent X in excess of Z' is forgiven.

Adding the missing words (I think):

[Enter] the amount of X [which is] in excess of Z, to the extent [that] X in excess of Z' is forgiven.

Which I think can be translated to:

Enter the forgiven portion of the difference between X and Z

...Which is as far as I can get without knowing more about what the heck a nonrecourse debt is, and what does it mean to be subject to it.

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    Instead of X and Z I think the appropriate variables are B and S.
    – Captain Claptrap
    Nov 25, 2010 at 4:45
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    +1 for being braver and more energetic than me. I took one look at the sentence (if so it may be called) and fled.
    – Robusto
    Nov 25, 2010 at 15:11
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    A nonrecourse debt is exactly what it sounds like. If you have a nonrecourse mortgage for $200,000 on a house worth $150,000 and you don't make the payments, the bank can take the house, but the other $50,000? They have ... no recourse! Of course, now you have $50,000 of "income" to declare and pay taxes on, which it what the paragraph Bill read was trying to say.
    – Michael Lorton
    Jun 2, 2011 at 6:52
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Having found the publication you referenced, I noticed two words that you left out that clear up the sentence a bit.

Liabilities include:
• The amount of nonrecourse debt in excess of the FMV of the property subject to the nonrecourse debt to the extent nonrecourse debt in excess of the FMV of the property subject to the debt is forgiven.

I'm going to add parentheses to help us understand the structure of this sentence:

Liabilities include   
(  
    (  
       (the amount of nonrecourse debt)  
       in excess of the FMV  
    )  
    of the property 
    subject to the  
        (nonrecourse debt)  
)  
to the extent [that]  
(  
    (  
        (nonrecourse debt)  
        in excess of the FMV  
    )  
    of the property subject to the debt is forgiven.  
)

In (somewhat) plain English:

Take the property that is subject to nonrecourse debt and find the Fair Market Value. Now find the amount of nonrecourse debt. Subtract the nonrecourse debt from the FMV. Even if the nonrecourse debt is forgiven, you must include it for tax purposes (in this instance, determining insolvency).

Disclaimer: I am not an attorney nor accountant and am not qualified in any way to give any legal or financial advice.

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    I edited this answer to increase the indentation (I think it makes it clearer); please feel free to revert to your version if you don't like it.
    – ShreevatsaR
    Nov 25, 2010 at 4:02
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IANAL.

First, after reading a bit about non-recourse debts and US tax law, I've realized that this might be a sentence fragment. Specifically, it refers to an amount, but that sentence no verb.

Second, a non-recourse debt is a debt which is secured against collateral (usually property) such that if the borrower defaults the lender can only take the collateral and nothing else; the rest of the debt is "forgiven". For tax purposes a forgiven debt is treated as income.

So this fragment says

The value of the debt which exceeds the value of that debt's collateral property, which was seized when the debt was forgiven

Or something along those lines.

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  • I have a feeling that the last two words "is forgiven" is actually the verb of the sentence and that there is a missing comma. i.e. "The debt that satisfies these conditions, is forgiven."
    – crasic
    Nov 24, 2010 at 21:37
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    @crasic, that was my first thought too, but then there's no way to make sense of the "to the extent that" part.
    – Marthaª
    Nov 24, 2010 at 21:57
  • @Martha, now if we assume extent was meant to be extant...
    – crasic
    Nov 24, 2010 at 22:24
  • It appears that this is indeed a sentence fragment; see the answer by waiwai933 that quotes the original document and puts the fragment in context.
    – ShreevatsaR
    Nov 25, 2010 at 3:56
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    @crasic: for "extent", I first tried two analyses: once with "extant" and once where there was a missing word for "extent" (something like 'to the extent XXX is in excess...') but I was unable to find convincing interpretations along those lines. It was only when I realized that this was an item in a list and not a sentence that anything made any sense. (not that it makes much sense). Tax law should be implemented using a formal language which can be executed by a computer. With unit-tests. Sigh.
    – Mr. Shiny and New 安宇
    Nov 25, 2010 at 13:49
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First, I am assuming this is a definition of a type of debt or an explanation of a value. Ok. So now let's give this a whirl:

Our value is:

The amount of nonrecourse debt in excess of X.

X is:

the FMV of the property subject to Y

Y is:

the nonrecourse debt to the extent [that] Z is forgiven.

Z is:

nonrecourse debt in excess of the FMV of the property subject to the debt

At least, that's the best I can do. I think this is intentionally obtuse to give attorneys something to argue over.

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    I had the same feeling about the "intentionally obtuse" part until I briefly read about the tax laws. Then I realized that this was probably a case of a lawyer writing down something which is patently clear to tax lawyers, because they write things like this all the time, and because they instinctively see the nouns and noun-phrases in that sentence, whereas normals like us have to break it down to first principles and it isn't even clear where it breaks.
    – Mr. Shiny and New 安宇
    Nov 25, 2010 at 13:45

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