FROM THE OFFICE OF PUBLIC AFFAIRS

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Today the Treasury Department and the IRS issued temporary regulations that provide rules for reducing tax attributes (e.g., net operating losses, tax credit carryovers) when the debt of a member of a consolidated group is forgiven.

“These regulations are an important clarification of how consolidated groups are to treat debt forgiveness in bankruptcy,” stated Pam Olson, Assistant Secretary for Tax Policy.

Under current law, the discharge of indebtedness is generally income to a debtor corporation. There is an exception to this rule, however, when the debtor corporation is in bankruptcy. In lieu of including the amount of indebtedness discharged in income, the bankrupt corporation must reduce its “tax attributes” by the amount of debt discharged. The reduction of attributes prevents corporations from avoiding taxable income in bankruptcy while retaining tax attributes that can reduce future tax liability.

Because consolidated attributes could later be used to reduce the tax liability of the bankrupt member, the temporary regulations clarify that all of the consolidated attributes of the group are available for reduction when the debt of a member of the group is discharged. In addition, they provide a methodology for reducing attributes. The temporary regulations apply immediately.

The text of the regulations is attached.

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Related Documents:

• The Text of The Regulations