69 Pages Posted: 13 Oct 2009
Date Written: 1991
This article examines, from the creditor’s standpoint, four basic tax issues that must be resolved to properly report the tax effect of debt renegotiation: first, the circumstances under which a debt renegotiation is properly classified as a taxable exchange under section 1001; second, the appropriate rules for determining the amount of the gain or loss resulting from the transaction, if a taxable exchange has occurred; third, whether any realized loss is recognized under section 1001(c) and deductible under some provision of the Code, most likely under sections 165 or 166; and finally, how to deal with the fact that the statute has been misapplied in Revenue Ruling 89-122 and in the recent opinions of two circuit courts. Further, this paper will argue that the statute has been encumbered by a formalistic rule recently elevated in the Supreme Court opinion in Cottage Savings Association v. Commissioner.
Keywords: tax, taxation, tax law, section 1001, Revenue Ruling 89-122, debt renegotiation, debt, Cottage Savings Association v. Commissioner
JEL Classification: K34
Suggested Citation: Suggested Citation
Blasi, Ronald and Adrion, Harold L., Renegotiated Debt: The Search for Standards (1991). Tax Lawyer, Vol. 44, No. 4, 1991. Available at SSRN: https://ssrn.com/abstract=1487776