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Bankruptcy and Insolvency Taxation, 4th Edition by Robert Liquerman, Grant W. Newton

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CHAPTER NINE

Tax Consequences to Creditors of Loss from Debt Forgiveness

§ 9.1 Introduction

§ 9.2 Nature of Losses

(a) Security Losses

(b) Loan Guarantees

§ 9.3 Business and Nonbusiness Losses

(a) Introduction

(b) Noncorporate

(c) Debt or Equity

(d) Business Motive

(e) Corn Products Doctrine

(f) Small Business Exception

(g) Affiliate Corporation

(i) Background

(ii) Rite Aid

(iii) Notice 2002-11

(iv) Treas. Reg. Sections 1.337(d)-2T and 1.1502-20T(i)

(v) Notice 2004-58 and Treas. Reg. Section 1.1502-20T(i)

(vi) Treas. Reg. Section 1.337(d)-2

(h) Impact on Earnings and Profit

§ 9.4 Determination of Worthlessness

(a) Introduction

(b) Meaning of Worthlessness

(c) Burden of Proof

(d) Security as Debt

(i) Identifiable Event

(e) Impact of Insolvency

(f) Impact of Liquidation Proceedings

(g) Impact of Bankruptcy Reorganization Case or Out-of-Court Settlement

(h) Other Factors

(i) Business Bad Debts (Section 166)

(i) Financial Institutions

(ii) Cash-Basis Taxpayer

(iii) Worthlessness

§ 9.5 Secured Debt

(a) Introduction

(b) Foreclosure

(i) Third-Party Purchase

(ii) Nonvendor Purchase: Two-Step Transaction

(c) Section 1038: Vendor–Mortgagee Reacquisition

(i) Nature of Gain

(ii) Basis of Property

(iii) Examples

(d) Voluntary Conveyance and Abandonment

(i) Debtor Personally Liable

§ 9.6 Reorganization

(a) Debt for Debt/Stock

(i) Debt Not Classified as Security

(ii) Debt Classified as Security

(b) Stock for Stock

§ 9.1 INTRODUCTION

The tax problems arising from debt cancellation are generally ...

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