New COD Rules For Disregarded Entities Are Restrictive
Law360, New York ( July 15, 2016, 2:39 PM EDT) -- When the debt owed by a debtor is canceled or forgiven, the debtor generally has cancellation-of-indebtedness (COD) income. COD income is generally includable in gross income, but may be excluded under Section 108 of the Internal Revenue Code in some instances. A statutory exclusion exists for COD income that arises in a Title 11 bankruptcy case or when the taxpayer is insolvent. Final regulations were issued recently that apply these exclusions to a grantor trust or a disregarded entity (DRE). According to the regulations, DREs include single-member limited liability companies that do not elect to be classified as corporations, corporations that are qualified real estate investment trust subsidiaries and corporations that are qualified Subchapter S subsidiaries....
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