Special Trivia Question for 5/19/26 (Claim of Right Doctrine)

Physician signing bonuses usually come in two forms - a lump-sum payment (described in this post), or a forgivable loan.
Suppose that instead of repaying cash, a doctor has to repay part of a forgivable loan. How does this affect the §1341 Claim of Right process?

A. You compute the tax savings from the amount of the loan you have to pay back.
B. You pay taxes on the part of the loan that was already forgiven.
C. You can deduct income (Method 1), but you can’t claim a credit (Method 2).
D. The §1341 Claim of Right doesn’t apply to this scenario.

IRC §1341 Claim of Right applies to previously taxed income.

Loans aren’t taxable income, and you don’t pay taxes when you receive a loan. When you repay a loan, there is no prior tax to reclaim.

On the other hand, when part of a loan is forgiven, that is recognized as income. However, once this amount is forgiven, it’s no longer subject to being clawed back.

The simplicity of this arrangement is an advantage. However, if you are just completing training and expect your income to increase substantially, you may prefer to receive a lump-sum bonus in a lower-income year.