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IRS Issues Rules on Tax-Free, Five-Year Deferrals
On Aug. 17, the Internal Revenue Service released Revenue Procedure 2009-37, which contains administrative rules for the deferral of tax due to cancelled or restructured business debts.
A provision of February’s American Reinvestment and Recovery Act and a change supported by NAHB and other business groups, the new rule allows a tax-free deferral of five years, followed by a 20% pro-rata repayment of the cancelled debt tax over the next five years for debts restructured in 2009 and 2010.
The rule applies to C Corporations and pass-thru entities.
While the description of the provision speaks to “reacquisition of the debt” (as may often be the case for certain large companies), the new rules also apply to debt-for-debt exchanges. This deferral should help reduce the tax consequences of businesses seeking debt workouts with lenders.
The Revenue Procedure will be published on Sept. 8 in Internal Revenue Bulletin 2009-36.
NAHB members with comments on the rules are asked to e-mail Robert Dietz or Greg Brown.
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