Proposed Regulations Perpetuate Income Distortion
Georgia State University College of Law
May 2, 2011
Tax Notes, Vol. 131, p. 489, 2011
Georgia State University College of Law, Legal Studies Research Paper No. 2011-12
This article discusses the proposal to modify regulations that determine a debt instrument’s issue price whenever there is an exchange of an instrument involving publicly traded property. Under both proposed and current regulation section 1.1273-2, the issue price of an instrument received in an exchange involving public property is equal to the fair market value of the publicly traded property. In contrast, an instrument’s issue price in an exchange involving non-publicly traded property is equal to the principal amount or stated principal amount of the debt instrument received, amounts that are unlikely to equal or approximate fair market value. The proposed regulations continue this dichotomy.
Existing regulations under 1001, not scheduled to be changed, provide that the amount realized on debt exchanges is determined by reference to the section 1273 issue price rules. By preventing the issue price of a debt instrument from being equal to fair market value of property in all cases, the plain language of section 1001 is violated, as is the fundamental principal of tax law that income be clearly reflected. This article urges the Treasury Department and the Internal Revenue Service to modify the proposed regulations so as to allow taxpayers to elect the use of fair market value in determining the amount realized on the exchange debt instruments not involving non-publicly traded debt property.
Number of Pages in PDF File: 10
Keywords: tax, debt instruments, issue price, debt instrument, proposed regulations, original issue discount, publicly traded property, tax law, fair market value
JEL Classification: H20, H29, K34Accepted Paper Series
Date posted: May 7, 2011 ; Last revised: June 5, 2011
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo8 in 0.344 seconds