Minimizing Tax in Commercial Loan Workouts and Debt Modifications

Legal Strategies for Reducing Cancellation-of-Debt Income

Recording of a 90-minute premium CLE/CPE webinar with Q&A

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Conducted on Thursday, July 15, 2010

Recorded event now available

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Course Materials

This CLE course will prepare tax counsel to examine the income tax implications of loan workouts and modifications and the impact on the lender and borrower. The panel will outline best practices for managing the tax consequences associated with these transactions.

Description

As the economy continues to limp along, practitioners frequently advise on the tax ramifications of loan workouts and debt modifications. Debt restructuring, insolvency and bankruptcy present challenging tax issues that practitioners rarely had to consider until a few years ago.

Loan workouts and debt restructuring may result in cancellation of indebtedness income for the borrower, a result often not anticipated by the business. What may appear to be a satisfactory loan workout or other solution could be a disaster when tax implications are taken into account.

Tax practioners advising distressed businesses must be prepared to offer their clients critical perspective in the planning stages of the transaction to minimize the consequences of COD income.

Listen as our panel of tax attorneys discusses the income tax implications of loan workouts and modifications and the impact on commercial borrowers. The panel will offer best practices for managing the tax consequences of these transactions.

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Outline

  1. Cancellation of indebtedness (COD) income
    1. Transfer of assets
    2. Stock-for-debt exchange
    3. Partnership-for-debt exchange
    4. Debt-for-debt exchange
    5. Related party debt acquisition
    6. Exclusion of COD income
  2. COD income from modification of debt instruments
    1. Overview
    2. Specific modifications that trigger COD income
    3. Consequences to debtors, original lenders, subsequent holders
  3. Deferral of COD income under American Recovery and Reinvestment Act
    1. Deferral election under Section 108(i)
    2. Special rules for OID in certain debt reacquisitions
    3. Acceleration of deferred items
    4. Special rules for partnerships

Benefits

The panel will review these and other key questions:

  • How does COD income arise in various debt restructuring transactions?
  • Under what circumstances can you exclude COD income and what are the consequences of this exclusion?
  • What are best practices for minimizing the tax ramifications of COD income?

Faculty

Joseph C. Mandarino
Joseph C. Mandarino
Partner
Stanley Esrey & Buckley

Mr. Mandarino's practice focuses on corporate, tax and finance. He has extensive experience in structuring M&A...  |  Read More

Vadim Mahmoudov
Vadim Mahmoudov
Partner
Debevoise & Plimpton

He is a member of the firm’s Tax Department whose practice concentrates on domestic and cross-border mergers and...  |  Read More

Rafael Kariyev
Rafael Kariyev
Counsel
Debevoise & Plimpton

His practice focuses on tax planning in connection with private equity fund formation, M&A transactions and...  |  Read More

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