Tax professionals receive questions related to cancellation-of-debt (COD) income, ramifications of debt workouts and restructurings quite frequently, especially in times of economic uncertainty. With tax season in full swing, it is important for individuals and businesses to understand the basics of COD income and what exclusions are common for businesses in this situation. COD income can occur in many circumstances, including the modification of a debt, the issuance of equity in satisfaction of debt, the acquisition of outstanding debt at a discount by a party related to the debtor, discharge of debt within or outside a bankruptcy proceeding, and more. Unless it is specifically excluded under the tax law, COD income is taxable under Section 61. However, there are circumstances that can lead to the exclusion of COD income based on what is stated in Sec. 108. An article from The Tax Adviser highlighted four of the most common exclusions…
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Bankruptcies under Subchapter V of Chapter 11 soared to a record high of filings in a single day as the debt limit of $7 million was reverted back to $3 million, with 91 filings on June 20, exceeding the typical volume of eight to 10 filings in a typical business day. Originally intended to last only one year, the higher limit was extended twice, with filings surging both times as the deadline approached. The law introducing Subchapter V went into effect in 2020, with the goal of making Chapter 11 bankruptcies faster and less expensive for small businesses by eliminating the need for disclosure statements and creditors’ committees. The Subchapter also removes the absolute priority rule that mandates priority claims to be fully repaid before the lower-ranking claims receive recoveries. In a report from Law360, Jonathan Grasso of YVS Law LLC represented Julian’s Recipe, a packaged, frozen baked goods company…
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In a recent lawsuit against a Kansas car dealership, an independent arbitrator found the dealership to be liable for more than $14.8 million in damages for customers whose information was falsified on their credit applications. For these customers, this resulted in higher loan payments and increased financial stress. In a report from Missouri Lawyers Media, the lead attorney for the 31 claimants, Ken McClain, said that the dealership was falsifying the information on the applicants’ credit applications. Information like income and job titles were inflated to ensure the applicants would qualify for larger loans, likely loan amounts that these customers would have trouble making repayments on. For example, McClain described that one claimant who works as a front desk clerk at a hotel was described as a ‘front end logistics specialist’ on the credit application submitted for her. With this falsified information, customers were receiving larger loans, which the dealership…
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