Cancellation of Indebtedness Income: Navigating Multi-State Tax Challenges

Strategies for State Non-Conformity, Allocation and Apportionment Policies

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, January 13, 2010

Recorded event now available

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Program Materials

This webinar will analyze the numerous challenges to multi-state corporate tax departments arising from different states' policies on cancellation of debt income and whether the policies match the federal Sect. 108.

Description

In 2009, the federal government adopted Sect. 108, giving taxpayers the election to defer recognition of cancellation of debt income (CODI) on reacquired debt instruments. This change triggers a host of thorny state corporate income tax issues for businesses.

For starters, Florida, Maryland, Minnesota and other states have decoupled from the federal provision. As more states make that change, multi-state corporations are forced into yet another balancing act — and their tax liability in some states could actually increase.

Plus, a company's decision to seek relief in conforming states has tax implications, depending on whether that state considers CODI to be non-business income and on how it apportions or allocates CODI.

Listen as our panel of experienced state tax professionals explains the important state corporate income tax implications of a new cancellation of debt income regime.

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Outline

  1. Brief review of federal Sect. 108
    1. Arose from American Recovery and Reinvestment Act of 2009-11-19
    2. Gives taxpayers an election to defer recognition of CODI on debt instruments reacquired by a debtor or third party in 2009 or 2010
  2. Current state conformity or non-conformity to Sect. 108
    1. States that match thanks to “rolling conformity”
    2. “Fixed-date conformity” states that likely will match when they update tax laws
    3. States that have affirmatively decoupled from Sect. 108
    4. Issues for taxpayers in states that have not yet adopted Sect. 108 or have decoupled
  3. Ramifications of seeking CODI-related relief
    1. Whether state says CODI constitutes business or non-business income
    2. The relationship between Sect. 108 and NOL provisions
    3. How the state apportions or allocates CODI

Benefits

The panel will address these and other key aspects of state tax and CODI:

  • State conformity to federal Sect. 108: Which states have adopted the provision and which have decoupled from it — and how the varying approaches affect a multi-state corporation's tax compliance and planning.
  • What can happen when your company seeks CODI relief: Possible state tax pitfalls depending on the state's policy on non-business income, NOLs, and apportioning or allocating CODI.

Faculty

Michael Jacobs
Michael Jacobs

Partner
Reed Smith

He is a member of the firm's State Tax Group and his practice emphasizes state tax planning in business...  |  Read More

Brian Sullivan
Brian Sullivan
Director, Multi-State Tax Services
Deloitte Tax

He has more than 14 years of experience in SALT issues for large- and middle-market taxpayers in areas such as debt...  |  Read More

Scott Gilefsky
Scott Gilefsky
Senior Manager, State and Local Tax Practice
Ernst & Young

He has more than 13 years of experience in Big Four firm SALT practices. His primary focuses are on state income/and...  |  Read More

Steve Wlodychak
Steve Wlodychak
Principal, Transaction Advisory Services/State and Local Tax Practice
Ernst & Young

He focuses on the state and local tax treatment of M&A, reorganizations, bankruptcies and restructurings. He...  |  Read More

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