New Partnership Debt-for-Equity Exchange Regulations

Navigating Issues With COD Income, Gains and Losses, and Other Aspects of Sect. 108(e)(8)

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

Conducted on Thursday, February 2, 2012

Recorded event now available

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Program Materials

This teleconference will provide advisors and taxpayers with a thorough review of the material terms and practical considerations involved with the finalized Sect. 108(e)(8) regulations on partnership debt-for-equity exchanges.

Description

Partnerships, businesses and advisors recently received important clarifications on the partnership- and partner-level federal tax consequences of debt-for-equity exchanges. Advisors need to become familiar with the material terms of these final Treasury and IRS regulations (TD 9557) on Sect. 108(e)(8).

The issues can be complex. For example, four conditions must be satisfied for a partnership and creditor to treat equity issued to the creditor as having FMV equal to its liquidation value for purposes of the partnerships' cancellation of debt (COD) income.

Creditors and advisors face new considerations. Creditors generally won't have to recognize gains or losses on exchanges of debt for an interest in a partnership. A bad debt deduction can't be claimed in a debt-for-equity exchange. Rather, a creditor's basis in the exchange will equal its tax basis.

Listen as our panel of experienced advisors helps you grasp the new rules on partnership debt-for-equity exchanges.

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Outline

  1. Background
    1. Congress in 2004 amends Sect. 108(e)(8)
      1. To provide for treatment when debtor partnership issues capital or profits interest to creditor in satisfaction of partnership debt
      2. Partnership treated as satisfying debt for amount equal to FMV of interest issued to creditor
    2. Treasury Department in 2008 issues proposed regs addressing number of issues
  2. Final Sect. 108(e)(8) regs, Nov. 15, 2011 (TD 9557)
    1. For purposes of determining amount of COD income recognized by partnership, equity issued to creditor has FMV equal to liquidation value
      1. Four conditions for liquidation value safe harbor
    2. Application of Sect. 721 to debt-for-equity exchanges
      1. Creditors generally don’t recognize gain or loss on exchange of debt for capital or profits interest in partnership
    3. No bad debt deduction in debt-for-equity exchange
      1. Creditor’s basis will equal its tax basis
  3. Practical situations likely to be faced now with debt-for-equity exchanges

Benefits

The panel will analyze these and other relevant topics:

  • Determination of cancellation of debt income to a partnership that transfers an interest to a creditor.
  • Arriving at fair market value of a partnership interest transferred to a creditor based on its liquidation value.
  • Treatment of debt-for-equity exchanges under Sect. 721.

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Faculty

Patrick McCurry
Patrick McCurry
McDermott Will & Emery

He is attached to the firm's Passthroughs Group and focuses his practice on structuring and implementing...  |  Read More

Yoram Keinan
Yoram Keinan
Shareholder
Greenberg Traurig

Mr. Keinan has more than 15 years of experience in U.S. and Israel federal tax law and specializes in U.S. and...  |  Read More

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