The U.S. Department of the Treasury recently issued final regulations providing helpful clarifications on the partnership and partner level tax consequences of debt-for-equity exchanges.On November 15, 2011, the U.S. Department of the Treasury (DOT) issued final regulations governing the federal income tax treatment of a transaction in which a partnership issues a partnership interest to a creditor in satisfaction of the partnership’s indebtedness. These regulations largely follow the approach taken in the proposed regulations issued in 2008, but with some helpful clarifications added.BackgroundIn 2004, Congress amended Section 108(e)(8) of the Code to provide that, when a debtor partnership issues a capital or profits interest to a creditor in satisfaction of a recourse or nonrecourse debt of the partnership, the partnership is treated as having satisfied the debt for an amount of money equal to the fair market value of the partnership interest being issued to the creditor. To the extent that the principal amount of the debt exceeds the fair market value of the equity being issued, the partnership recognizes cancellation of debt (COD) income. Such COD income generally must be included in the distributive shares of the partners immediately prior to the discharge (subject to any applicable exclusions at… Read full this story
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Final Regulations on Partnership Debt-for-Equity Exchanges have 305 words, post on www.natlawreview.com at November 28, 2011. This is cached page on Law Breaking News. If you want remove this page, please contact us.