Troubled borrowers face numerous tax issues, and sometimes tax surprises, in the context of debt workouts and bankruptcy. Matters become more complicated in the context of LLC's, S-corporations and other pass-through entities.
This course addresses the creation and exclusion of cancellation of indebtedness income, consequences of debt workouts on LLC members, tax attribute reduction, original issue discount effects, and the treatment of tax claims in bankruptcy and the taxation of the bankruptcy estate.
Publication Date: February 2021
Designed For
Tax practitioners at all levels who provide advice and return preparation on debt modifications, debt workouts, and bankruptcies.
Topics Covered
- Cancellation of indebtedness income
- Exclusion of cancellation indebtedness income under section 108
- Debt modification rules
- Difference in treatment from foreclosures on non-recourse debt secured by property
- Tax treatment of claims in bankruptcy and taxation of bankruptcy estate
Learning Objectives
- Recognize how to explain the difference in tax treatment between cancellation of recourse debt and foreclosures of property securing non-recourse debt
- Identify situations when cancellation of indebtedness income may be excluded under section 108
- Describe which types of debt modifications are treated as exchanges, and the tax consequences
- Explain the tax treatment of claims in bankruptcy and the taxation of the bankruptcy estate
- Differentiate situations that would likely result in COD income and eligible for exclusion
- Identify cases when discharged debt would not be limited for exclusion
- Recognize conditions of insolvency exceptions
- Identify whey discharge of indebtedness is included in gross income
- Recognize when discharge of debt is considered
- Describe when a debt work-out is advantageous to the lender
- Identify examples of significant modification to a debt instrument
- Recognize when the consequences of transfers of property subject to debt dependency is considered
- Differentiate when qualifications for the real property business indebtedness exclusion does not qualify
- Identify which is reduced first when reducing tax attributes of a debtor
Level
Intermediate
Instructional Method
Self-Study
NASBA Field of Study
Taxes (2 hours)
Program Prerequisites
Basic familiarity with debt instruments, partnership taxation and bankruptcy.
Advance Preparation
None
Instructor
Jennifer Kowal
Jennifer Kowal, JD, has been a tax professor and the director of the graduate tax program at Loyola Law School in Los Angeles since 2003. Loyola’s graduate tax program offers an LL.M. in Taxation for attorneys and a Master in Tax Law for non-lawyers. Professor Kowal teaches courses in advanced income taxation, income tax timing issues, corporate taxation, and tax research, among others. Prior to teaching at Loyola, Professor Kowal taught in the International Tax Program at Harvard Law School.
She also practiced law with the firms of Irell & Manella in Los Angeles and Ropes & Gray in Boston, advising clients on the taxation of various business transactions, including cross-border, partnership and corporate structures. Professor Kowal holds a BS in Accounting with distinction from the University of Kansas, and a JD from UCLA School of Law, where she was a member of the Order of the Coif.