Discharge of Indebtedness Rules Clarified for Grantor Trusts and Disregarded Entities

On Apr 12, a IRS released due regulations (REG-154159-09) that yield manners per who is a “taxpayer” for functions of requesting a Sec. 108 liberate of indebtedness manners to a grantor trust or overlooked entity.

Secs. 108(a)(1)(A) and (B) bar liberated debt from a taxpayer’s income if a liberate occurred in a failure box or to a border a taxpayer is ruined when a liberate occurs. The due regulations yield that, in cases involving a grantor trust or overlooked entity, for functions of Secs. 108(a)(1)(A) and (B) “taxpayer” would meant a owners of a grantor trust or overlooked entity. The grantor trust or overlooked entity itself would not be deliberate a owner.

For partnerships, a due regulations yield that a owners manners would request to a partners to whom a liberate of indebtedness income is allocable. If any partner is itself a grantor trust or overlooked entity, a qualification of Secs. 108(a)(1)(A) and (B) would be dynamic by looking by that partner to a ultimate owners of a partner.

The due regulations explain that a penury difference is accessible usually to a border that a owners is insolvent—the penury of a grantor trust or overlooked entity itself is not taken into account. Similarly, a due regulations explain that a failure difference is accessible usually if a owners of a grantor trust or overlooked entity is theme to a failure court’s jurisdiction—if a grantor trust or overlooked entity is underneath a failure court’s office and a owners is not, a difference is not available.

The due regulations would be effective on or after a date they are finalized.

The IRS has asked for comments per a due rules; comments can be submitted electronically during www.regulations.gov.

About Emil Estafanous, CPA
Certified Public Accountant (CPA) Tax Professional committed in representing taxpayers and resolving their tax problems.

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