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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:
Day Pitney Alert
On April 28, Scott Clark, Chair of Day Pitney's Multistate Tax Practice, presented at the Federal Tax Institute of New England 2022 conference, sponsored by the Connecticut Bar Association, on "The Cutting Edges of Multistate Taxation: Pass-Through Entities, Digital Products, Domicile Update, and more."
On April 8, Tax Attorney Mariano Beecher will be speaking at a Boston Bar Association webinar on the introduction to the practice of tax law.
On March 31, The Boston Bar Association will be hosting a virtual CLE that will provide introduction to tax issues related to cryptocurrency.
Scott Clark, chair of Day Pitney's Multistate Tax Practice, is presenting on a virtual panel for the Tax Executives Institute, Inc., Westchester-Fairfield Chapter titled, "Ethics and the Corporate Tax Department" on March 16.
Day Pitney Press Release
Day Pitney Press Release
VCV Digital Technology announced that it plans to become a publicly traded company via a business combination with Fortune Rise Acquisition Corporation (NASDAQ: FRLAW, FRLA and FRLAW), a special purpose acquisition corporation.
In March 2022, Day Pitney completed a transaction in which it represented Iridian Asset Management LLC, an asset management firm based in Westport, CT and its management team (collectively "Iridian"), in connection with the "management buyout" of its founding partners and the firm's asset management business.
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