The indirect acquisition rules create a number of presumptions that make Sec. 108(e)(4) applicable to situations in which the acquisition of debt from a party unrelated to the debtor (D) is made by a person (P) who becomes related to the debtor following the acquisition. In general, an indirect acquisition results if P becomes related to D within six months of the debt acquisition (Prop. Regs. Sec. 1.108-2 (b)(2)(ii)(A)). If P becomes related to D six months or more after the ...
When is debt cancellation related to a party unrelated to debt?
Related-party debt cancellation. The indirect acquisition rules create a number of presumptions that make Sec. 108 (e) (4) applicable to situations in which the acquisition of debt from a party unrelated to the debtor (D) is made by a person (P) who becomes related to the debtor following the acquisition.
What are the tax consequences of debt cancellation?
The tax consequences of debt cancellation -- the “bad debt deduction” for lenders and “cancellation of debt income” (CODI) for borrowers -- can be esoteric and arcane, so to help in issue spotting, here are 11 things to know: 1. Not every liability is a “debt.”
Can related-party debt be forgiven?
However, the forgiveness of related-party debt is inherently intertwined with the broader related-party relationship. The holder of related-party debt is in effect changing the nature of its investment in the entity from debt to equity, so no gain should be recognized in net income.