Corporate debt restructuring: stock-for-debt exchanges and other workout scenarios

Article Abstract:

Congress, in Section 108(e)(8) of the Bankruptcy Tax Act of 1980, indirectly permitted corporations to trade stock for debt without incurring cancellation of debt (COD) income. This stock-for-debt exception is important to corporate planners seeking to minimize both COD income and attribute reduction. However, a 1990 amendment limits the exception's applicability to disqualified stock such as stock with a fixed redemption rate. The IRS proposed regulations for stock-for-debt restructurings, including controversial safe-harbor tests for stock transfers, which will cover acquisitions occurring after Mar 21, 1991.

Debt financing (Corporations), Debt financing, Debt equity conversion

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Corporate distributions: handling liabilities in excess of the fair market value of property remains unresolved

Article Abstract:

The Tax Reform Act of 1986 (TRA '86) made corporations liable to taxation for distributions of property in excess of the fair market value. TRA '86 repealed the rule against the double taxation of corporations for property distributions. Liquidating distribution, liquidating sale, and nonliquidating distribution of property are all recognized as forms of gain by corporations under TRA '86. However, the Technical and Miscellaneous Revenue Act of 1988 corrected TRA '86's rule concerning tax liability for distributions.

Liabilities (Accounting), Corporate distributions, Liquidation

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