With Great Power Comes Great Responsibility: Deferring Cancellation of Debt Income for Tax Partnerships

One of the most significant hurdles in structuring a suitable debt workout or restructuring arrangement between a lender and a borrower involves the negative impact of U.S. income taxes on the borrower, particularly if the partners have conflicting objectives in terms of their tax position. Various options are available to partners when making elections to recognize COI income immediately or to defer it. When general partners consider the potential impact of these elections on their partners’ financial situation, perils can be avoided.