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On November 15, the Internal Revenue Service issued final Treasury Regulations (Regulations) under Section 108(e)(8) of the Internal Revenue Code regarding the determination of the cancellation of debt (COD) income to a partnership that transfers a partnership interest to a creditor in satisfaction of a partnership debt.
Pursuant to the American Jobs Creation Act of 2004, Public Law 108-357 (118 Stat. 1648), Section 108(e)(8) was amended to expand its scope to include cancellation of partnership indebtedness. Prior to the amendment, Section 108(e)(8) only applied to cancellation of corporate indebtedness. As amended, if a debtor partnership issues a capital or profits interest in the partnership in exchange for its debt (recourse or nonrecourse), the partnership is treated as having satisfied the debt with an amount of money equal to the fair market value (FMV) of the partnership interest issued to the creditor. The amount by which the discharged debt exceeds the FMV of the partnership interest is COD income and is included in the distributive shares of the partners in the partnership immediately before the discharge.
The final Regulations provide that, for purposes of calculating the COD income to a partnership, the FMV of a partnership interest transferred to a creditor is its liquidation value. For these purposes, the liquidation value of the partnership interest is equal to the amount of cash that the creditor would receive with respect to the interest if, immediately after the transfer, the partnership sold all of its assets (including goodwill, going concern value, and any other intangibles) for cash equal to the fair market value of those assets, and then liquidated.
However, under the final Regulations, this liquidation value can be used to determine the FMV of a partnership interest only if the following three conditions are met:
Daniela P. Catrocho and Richard D. Sanders authored the article, "Retroactive Tax Legislation and Gift Planning in 2021," which was published in the New Jersey Law Journal.
On February 24, Partner Carl A. Merino spoke on "Reporting by U.S. Person of Foreign Income, Assets and Transactions" at a webinar hosted by STEP Colorado Formation and STEP Chicago.
The ABA recently published the 25th Edition of The Property Tax Deskbook.
Day Pitney Press Release
Senior Associate Justin M. Hannan and Partner Stephen Ziobrowski were quoted in the Law360 Tax Authority article, "Carried Interest Regs Leave Uncertainty On Family Managers."
Day Pitney Press Release
Day Pitney Press Release
On March 11, Day Pitney Counsel Jordana G. Schreiber spoke on the "Basics of Estate Planning" for physicians at Massachusetts General Hospital.
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