Among the biggest issues facing debtors in bankruptcies and workouts is cancellation of debt income. The last thing debtors expect when facing insolvency or bankruptcy is a tax bill from phantom income! Cancellation of debt can be particularly acute for partners and members of LLCs and partnerships that are debtors, because this COD income may be allocated to the partners and members.
Lenders and outside investors involved in debt workouts may be seeking to preserve Net Operating Losses (NOLs) or other tax attributes of the debtor. Jon has advised clients on phantom income, preserving tax attributes, and related issues, including:
- Represented creditors in tax aspects of voluntary debt restructuring and exchange of debt for equity in education software company.
- Advised creditor on U.S. tax treatment (including preservation of tax attributes) of exchanging debt for equity of distressed NJ casino business as part of strategic acquisition in prepackaged bankruptcy.
- Advised private equity investor on tax aspects of complex investment in seafood producer. Private equity fund invested alongside creditors exchanging debt for equity.
- Represented group of creditors in $400 million exchange of debt for equity as part of prepackaged bankruptcy plan for company producing temporary buildings and structures.