Welcome to TaxBlawg, a blog resource from Chamberlain Hrdlicka for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention.
Tax practitioners have previously lacked a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.
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Times are tough, and many troubled companies are facing the need to modify debts that were issued when times were better (and the companies were financially much stronger). For companies that wish to modify their debts, and for investors that hold those debts, federal tax law imposes an unfortunate limitation. An outstanding debt that undergoes a “significant modification” is treated as having been exchanged for a new instrument with the modified terms. See Treas. Reg. § 1.1001-3. As a result, holders of the debt will generally be required to recognize gain or loss on the deemed exchange of the debt and, in some instances, the issuer may be forced to recognize income as well. Thus, the question of whether a modification will result in a deemed exchange of the debt for federal income tax purposes has the potential to complicate, or even derail, potentially beneficial debt modifications.
If you haven’t memorized the 433 pages of the latest version of the American Jobs and Closing Tax Loopholes Act of 2010 (undoubtedly named to allow for the euphonious acronym, AJACTLA), you are denying yourself a unique treat. (To get the true flavor, don’t forget the fifteen pages of amendments included with the House passage of the bill on May 28.) We will allow others to give you a full rundown of the 206 sections of the bill and content ourselves with a summary of the highlights.