Restructuring debt may have negative impact
Article Abstract:
Financially-troubled corporations that are considering debt restructuring as a solution to increasing creditor and shareholder pressures should carefully examine the consequences of such a move in terms of the diminished or lost tax attributes that may result. The issuance of company stock as a substitute to cash or property as payment for debt to creditors serves to alleviate cancellation of indebtedness (COD) income requirements for the debtor in a state of insolvency or bankruptcy. However, the stock issuance can also result in a change of ownership for the debtor company based on Section 382 and lead to constricting pre-change loss options for the debtor in cases where it may be necessary to counter income changes subsequent to the change. Corporations can turn to Section 382(1)(5)'s special rules for bankrupt businesses when the debt reorganization results in an ownership change.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1992
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Tax effects may decide fate of troubled real estate
Article Abstract:
Exploring ways of working out troubled loans has become a necessity for industries hit hard by the unstable economic climate of the 1990s. The real estate industry in particular has been relying heavily on loan workouts. Real estate workouts may be classified into two types: property transfers and debt restructuring. In a property transfer, the borrower's property is given to the lender to settle debt. In the restructuring of debt, the borrower retains ownership of the property as new debt terms are negotiated. Both of these transactions have tax consequences which can be minimized or put off with careful planning.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1992
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Partnership debt restructurings can vary in tax results
Article Abstract:
Partnerships owning real estate must consider tax implications when planning a restructuring of debt. Four common types of restructuring are: modification of debt terms; reduction of principal balance; admission of the lender as an equity partner; and foreclosure of real property securing the debt. Proper tax planning of real estate debt restructuring should consider several factors, such as: questions on the discharge of indebtedness; creation of gain or loss for the partnership involved; and whether the discharge could be excluded from income under bankruptcy and insolvency regulations.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1991
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