Article by John Hackney and Jasen Hanson on "IRS Undermines Congressional Intent for Relief Loans"
In an article published on October 2, 2020 in Bloomberg Tax, Chamberlain Hrdlicka shareholder John Hackney and associate Jasen Hanson discuss how partners could end up owing tax on canceled debt.
“As businesses shutter and others attempt to restructure their operations to fend off complete liquidations, bankruptcies will become more and more prevalent,” explain Hackney and Hansen. “The benefits of bankruptcy are obvious—a reorganization can salvage a business facing insurmountable costs due to short-term, but drastic, fluctuations in cash flows. For partners in pass-through entities, bankruptcies and other forms of debt relief may have unintended consequences.”
Hackney and Hanson further explain why Congress requires taxpayers, including partnerships, to recognize gross income when creditors forgive debt through tax code Section 61(a)(11) but applies the debt relief exclusion rules of Section 108 at the partner level.
“With a slew of bankruptcies likely on the horizon, partners should consult tax advisors as to the potential tax consequences to them individually as a result of partnership-level debt relief,” said Hackney and Hanson.
To view the full article, you may click here.