Cancellation of Debt and Section 108

Corporate Level Consequences of Cancellation of Debt- Section 108

  • Section 108(a)(1): The discharge or cancellation or forgiveness of debt is generally included in the debtor’s gross income unless(meaning tax has to be paid on it):
    • The debtor is in bankruptcy
    • The debtor is insolvent
    • The debt is qualified farm debt, or
    • The debtor is not a c corporation and the indebtedness discharged is qualified real property business indebtedness
  • Section 108(e)(8): Deals with debt that is satisfied by the corporation issuing stock
    • Debt satisfied to the extent of the fair market value of the stock

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