IRS Unveils Final Rules on Applying 108(e)(8) COD Rules to Partnerships

For over 50 years, Bloomberg BNA’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

IRS unveils eagerly awaited final rules (T.D. 9557) on how partnerships and partners should treat their cancellation of indebtedness income under tax code Section 108(e)(8). The guidance strengthens an anti-abuse provision under the proposed rules as part of changes to a safe harbor involving liquidation value. In general, the rules address how to determine discharge of indebtedness income for partnerships that transfer a partnership interest to a partner to satisfy the partnership's indebtedness. IRS says the guidance also deals with how to apply tax code Section 721 when a creditor contributes a partnership's recourse or nonrecourse indebtedness to the partnership in exchange for a capital or profits interest in the partnership. IRS Associate Chief Counsel Wilson discusses changes made in new final rules on the treatment of partnership interest for debt under tax code Section 108(e)(8). Wilson, speaking to the NYU tax institute, says the rules are among three top items the service was expected to release guidance on in the coming months.