1993 tax legislative changes to the passive activity loss rules

Article Abstract:

The changes to IRC section 469 contained in the Revenue Reconciliation Act of 1993 allow full-time real estate developers to offset income with passive activity losses just as other businesses can. The changes also revise how passive activity losses are treated for taxpayers with cancellation of indebtedness income. The rules for real estate developers require more than 750 hours and 1/2 of their business in the real estate trade during the tax year as well as material participation in real estate trades. These changes provide tax equity concerning passive losses while preventing tax shelters.

Real estate developers, Taxation, Loss deductions, Passive activity (Taxation)

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Planning for noncorporate debt workouts outside of bankruptcy

Article Abstract:

Many non-corporate taxpayers effected by the adverse economic conditions are exploring debt workouts that do not require declaring bankruptcy or insolvency but also avoid adverse tax consequences under IRC section 108. Debt reorganization that includes debt cancellation or the creditor accepting something of lesser values as full payment create taxable cancellation of debt income (COD). Some methods for excluding COD are: if the debt was deductible, if the purchase price was reduced or if a shareholder gives the debt to a corporations as capital.

Management, Tax deductions, External debt relief, Debt relief

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IRS issues proposed regulations on debt modifications

Article Abstract:

The IRS has issued proposed regulations under IRC section 1001 in response to Cottage Savings Assn v Commissioner that substantially expand the debt modifications resulting in cancellation of debt (COD) income. The regulations are partly taken from case law, but certain aspects deviate from any previous ruling to create a broad definition of debt instrument modifications that are exchanges of properties and therefore taxable. These rules may limit the available debt restructuring because of the negative tax consequences.

Income tax

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