Proposed regulations provide guidance on modifications of debt instruments

Article Abstract:

The IRS has put forth clarification of debt instrument modifications and has outlined the conditions under which such modifications will be taxed as a realization of gain or loss. The proposed regulations are based on the Supreme Court's decision in the Cottage Savings Assn v. Commissioner. The court's decision caused fears that even seemingly insignificant changes in the terms of debt would trigger realization that would be subject to taxation. The IRS' regulations clarify such modifications as a change in yield, a change in the timing of payments and a change in obligor.

Debt, Recognition of gain or loss (Taxation), Recognized gain or loss (Taxation)

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Debt restructuring rules favor the insolvent

Article Abstract:

Current rules for debt restructuring give tax advantages to bankrupt companies. There are exceptions to cancellation of indebtedness income tax under IRC section 108 for insolvent companies. Debt-for-debt and stock-for-debt transactions by bankrupt companies are favored. Proper reforms would apply income tax to these transactions for tax equity for all reorganizations.

Interpretation and construction, Bankruptcy law, Corporate reorganizations

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Congress considers tax relief for debt restructurings

Article Abstract:

Proposed IRS regulations for debt restructuring are discussed. In the context of corporate reorganization, nonrecognition status has been restored to exchanges of debt for debt. Furthermore, new bonds exchanged for older ones at a lower rate counts as cancellation of debt income for the debtor.

Debt equity conversion

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