Renegotiated Debt: The Search for Standards
This article examines, from the creditor’s standpoint, four basic tax issues that must be resolved to properly report the tax effect of debt renegotiation: first, the circumstances under which a debt renegotiation is properly classified as a taxable exchange under section 1001; second, the appropriate rules for determining the amount of the gain or loss resulting from the transaction, if a taxable exchange has occurred; third, whether any realized loss is recognized under section 1001(c) and deductible under some provision of the Code, most likely under sections 165 or 166; and finally, how to deal with the fact that the statute has been misapplied in Revenue Ruling 89-122 and in the recent opinions of two circuit courts. Further, this paper will argue that the statute has been encumbered by a formalistic rule recently elevated in the Supreme Court opinion in Cottage Savings Association v. Commissioner.
Harold L. Adrion & Ronald W. Blasi, Renegotiated Debt: The Search for Standards, 44 Tax Law. 967 (1991).
Institutional Repository Citation
Adrion, Harold L. and Blasi, Ronald W., "Renegotiated Debt: The Search for Standards" (1991). Faculty Publications By Year. 1199.