Pass-Through Entities and COD Income: Sheltering Solvent Entity Owners From Insolvent Entity Taxable COD Income

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


Conducted on Wednesday, January 28, 2015

Recorded event now available

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Program Materials

This CLE/CPE webinar will provide tax advisors and counsel with a review of insolvent pass-through entities and the options available to protect solvent owners from realizing taxable cancellation of debt (COD) income. The program will highlight how COD income is treated for various types of business entities under the IRC and discuss IRC §108 exclusions as well as focus on recent developments that provide a strategy for protecting solvent owners of insolvent pass-through entities.

Description

COD poses particular federal tax problems for the owners of insolvent pass-through entities, especially when the owners themselves are not insolvent. Generally, the owners of pass-through entities are apportioned COD taxable income whenever a pass-through entity has its debt cancelled. As a result, solvent owners may be responsible for paying significant taxes on COD income allocated to them by the entity. 

Accountants and other tax practitioners must be aware of strategies for pass-through entities to “lock in” COD at the entity level. An obvious way to do this is for a pass-through entity to elect a different tax status, such as C Corp tax status. However, creditors would strongly oppose such a move and it creates the danger of being ruled a fraudulent transfer.

Listen as our panel reviews and provides guidance on proper handling of COD taxable income. The panel will focus on the way COD income is treated for various types of business entities under the IRC and discuss IRC §108 exclusions.

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Outline

  1. IRC treatment of COD income for various types of entities
  2. Entity owner(s) “property right” to terminate and elect a new tax classification
  3. Strategies for pass-through entities to lock in COD income at the entity level

Benefits

Our panel will review these and other key issues:

  • What is the impact of the dual authority for insolvent pass-through entity owners to terminate and elect entity tax classification?
  • What is the precise timing required for terminating and electing tax classification in order to protect solvent owners?
  • What guidance can tax advisors offer to overcome creditor challenges to an insolvent pass-through changing its tax status to avoid COD income being attributed to its owners?

Faculty

Robert A.N. Cudd
Robert A.N. Cudd

Senior Partner
Polsinelli

Mr. Cudd advises both domestic and foreign entities on tax-efficient structures as well as on transactions between the...  |  Read More

Jeffrey R. Davine
Jeffrey R. Davine

Partner
Ballard Spahr

Mr. Davine's practice focuses on federal and local taxation, tax planning, and estate planning issues,...  |  Read More

Joseph K. Fletcher, III
Joseph K. Fletcher, III

Partner
Glaser Weil Fink Howard Avchen & Shapiro

Mr. Fletcher has particular expertise ranging from the taxation of mergers and acquisitions to international taxation...  |  Read More

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Strafford will process CLE credit for one person on each recording. All formats include program handouts. To find out which recorded format will provide the best CLE option, select your state:

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