Tackling Taxes

In this column, the authors will explore the income tax consequences of debt extinguishment in three types of nontaxable corporate transactions when both the debtor and creditor are members of a consolidated return group: 1. Transfers to controlled corporations under Code Sec. 351. 2. Subsidiary liquidations under Code Sec. 332. 3. Acquisitive reorganizations under Code Sec. 368(a). Unless stated otherwise, both the transferor and the transferee corporations are solvent for purposes of this tax column. The income tax treatment of a debt extinguishment within a separate return context does not necessarily apply to intercompany obligations of members in a consolidated return group. An intercompany obligation is an obligation between members of a consolidated group, but only for the period during which both parties are members. Reg. Section 1.1502-13(g)(3)(i)(B) provides a number of exceptions to the deemed satisfaction and reissuance regime.