Apollo Financial Group Lobbies Congress - Requests Review of Legislation Regarding Taxation of Loan Modifications

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Apollo Financial Group lobbies Congress. Requests Congress review the way loan modifications are taxed to the holder of the debt. Currently, debt owners are essentially penalized for doing the right thing.

distressed debt
"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"

by Bill Cooper Anderson

For immediate release

Apollo Financial Group lobbies Congress to request review of legislation on taxation to the debt holder offering loan modifications on acquired debt.

Income tax law makes federal government complicit in home foreclosures against American homeowners.

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

The law says any time loans like mortgages are modified, the modified loan 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 known as a “phantom income” tax. 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 C.E.O Dean Anastos.


Apollo Financial Group buys and sells distressed financials, chiefly mortgage notes, at a discount. Apollo and its clients can then lower the loan’s principal. The income tax problem comes about when the loan is modified.

“When the terms of the loan are ‘substantially’ modified, the acquirer of debt must recognize a ‘gain’ which equals to the new loan balance minus the cost basis. A tax bill on ‘phantom income’ 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, however the law says that $25,000 is immediately recognized as an income and must be taxed. That’s money that has not been received and may never be received. The law allows the IRS to tax phantom income. That’s just wrong,” Mr. Brava said.


No other law taxes potential income. Mr. Anastos said this law makes the federal government a partner in home foreclosures. A debt buyer, that buys a mortgage in default, might not offer a loan modification to the homeowner, since to do so will generate a tax bill 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 offer 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 bank's mortgage portfolio. The acquiring bank may consider reducing the principal and interest rate on a borrower’s mortgage,” he said. “Now, the acquiring bank is required to pay income tax when modifying the homeowners loan. In light 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 whereas in a loan modification it doesn't.”

Lou Sookpaul, CPA and Owner of CNS Associates Accounting firm specializes in the taxation of debt buyers, he said "If this phantom income tax law did not exist, refinancing mortgages would be far more commonplace and foreclosures would drop." Mr. Sookpaul continued "Companies by their very nature seek to save on taxes and the way the tax system is structured debt buyers are shooting themselves in the foot when they do the right thing."

Ricky Brava, who has recently been doing radio interviews on distressed debt investing and saving the American Dream, was startled by the law when he first heard of it. "When a distressed debt investor is willing to work with American homeowners and negotiate better terms so they can stay in their homes, the investor 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.

Dean Anastos and Ricky Brava both 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 -Apollo Financial Group is a buyer and seller of distressed debt such as residential
and commercial non-performing notes. For more information visit http://www.ApolloFinancialGrp.com or call 866 825 9350.

For more information:
Dean Anastos
866 825 9350

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