Cancellation of Debt Income
The District of Columbia’s New Budget Includes Several Tax Increases
To close the gap in its budget, The District of Columbia recently passed the “ Fiscal Year 2010 Budget Support Emergency Act of 2009 ” (the Act). The legislation comprises chiefly of tax rate increases, including income, sales, property, tobacco and gas taxes. The budget also reduces costs by expanding the requirements to file electronically. Income Taxes Effective for taxable years beginning December 31, 2008, the legislation excludes from District taxable gross income cancellation of indebtedness (COD) income under IRC § 108(i). The Act also redefines “gross income” to align with the definition under IRC § 61 as of December 31, 2008, in reference to sales and excise taxes on certain motor vehicle purchases.. Read More.
North Carolina’s New Budget Includes Several Tax Increases
On August 7, 2009, North Carolina Governor Bev Perdue signed the state’s $19 billion budget bill, which includes nearly $1 billion in new taxes. The new taxes include added income tax surcharges, expanded and increased sales and use taxes, and increased excise and sales taxes on alcohol and tobacco products. The budget also seeks to increase taxable income bases by decoupling several provisions from federal economic stimulus packages. Corporate Income Tax Surcharge The new budget levies a surcharge of 3 percent on corporate income tax due for the 2009 and 2010 tax years.
IRS Issues Guidance for Making the Election to Defer Cancellation of Indebtedness Income
On August 17, 2009, the IRS issued Revenue Procedure 2009-37 (the Procedure) to provide much needed guidance on how to defer cancellation of indebtedness (COD) income on “reacquired” debt under new Internal Revenue Code Section 108(i). This section was added to the Internal Revenue Code under The American Recovery and Reinvestment Act of 2009 , signed into law by President Obama earlier this year. Under this new provision, debtors have the ability to defer (through an election) COD income from the “reacquisition” of an applicable debt instrument in 2009 or 2010. The deferred COD income is recognized ratably over the five-year period from 2014 through 2018. Essentially, a taxpayer with a qualified reacquisition of debt receives a. Read More.
Business Owners Face Greater Challenges as Debt Collectors Buy Troubled Loans
The New York Times reports today on the difficulties that many small businesses are beginning to face as debt collectors buy troubled commercial loans at bargain prices from the F.D.I.C., which has seized 58 failed banks nationwide over the last 15 months. [T]he F.D.I.C. has made it a national policy to try to avoid foreclosures on the single-family mortgages it inherits from failed banks, even if payments are past due. But there are no such rules to protect struggling small businesses, whose loans are more typically sold at the F.D.I.C. auctions. Click here to read the article.
Cancellation of Debt Income Provisions in the American Economic Recovery and Reinvestment Act of 2009
The American Economic Recovery and Reinvestment Act allows certain businesses that by their own debt at a discount to recognize cancellation of debt income (CODI) effectively over 10 years (defer tax on CODI for the first four or five years and recognize this income ratably over the following five tax years) for specified types of business debt or forgiven by the business after December 31, 2008, and before January 1, 2011. Given the recent steep declines in the certain sectors, corporations seeking to improve cash flow could benefit greatly from this provision. Creative application of losses can significantly reduce tax. Read More.