Volume 5 Winter 2011 Number 2 - Charleston Law Review

CHARLESTON LAW REVIEW [Volume 5will be no opportunity for attribution reduction. 106D. Timing of Cancellation of DebtGenerally speaking, there should not be a significant issuewith regard to the time when cancellation of indebtedness incomeis realized. In the typical case, it is realized at the point in timewhen the debt is satisfied for an amount less than the principalamount owed. In the case of debt instruments that are publiclytraded, the date is when the issuer acquires the obligations, evenif the debt obligations are not retired at that point. 107 Since thefocus is on situations in which there is a restructuring of thepartnership’s debt, it should be clear when the triggering eventoccurs. Outside of this area, cancellation of indebtedness incomeis realized based on a facts and circumstances approach. 108 Thisis usually evidenced by a satisfaction agreement between thedebtor and the creditor, 109 on the date of court approval of asettlement between the parties 110 when the statute of limitationshas expired, and the creditor can no longer collect theobligation. 111 Or, it is evidenced by some other event that usuallyinvolves a situation in which the creditor has written off theclaim and the debtor has shown that it did not intend to satisfythe claim. 112E. Allocation of Cancellation of Indebtedness Incometo PartnersCancellation of indebtedness income constitutes an elementof the partner’s distributive share of income and it would seem,at first blush, that it should be allocated in accordance with themanner in which the partners share profits under the terms of250106. I.R.C. § 108(d)(6) (2006).107. Mont., Wyo. & S. R.R. v. Comm’r, 31 B.T.A. 62 (1934).108. Cuzzi v. Comm’r, 88 T.C. 435 (1987).109. Seay v. Comm’r., 33 T.C.M. (CCH) 1406, 1407 (1974).110. Exch. Sec. Bank v. United States, 492 F.2d 1096, 1097 (5th Cir. 1974).111. Sec. Co. v. United States, 85 F. Supp. 532, 532 (S.D.N.Y. 1948).112. Marcus Estate v. Comm’r., 34 T.C.M. (CCH) 38, 39 (1975).