Volume 5 Winter 2011 Number 2 - Charleston Law Review

CHARLESTON LAW REVIEW [Volume 5exceeds the basis of the assets subject to the debt. 153B. Qualified Real Property Business Indebtedness (QRPBI)Section 108(a)(1)(d) has an exclusion for qualified realproperty business indebtedness (QRPBI). 154 This provision canbe applied by partnerships and LLCs to exclude cancellation ofindebtedness income where the indebtedness was incurred orassumed by the taxpayer in connection with real property used ina trade or business. 155 This can also be applied if theindebtedness is secured by the real property or the indebtednesswas incurred or assumed before January 1, 1993, or if incurredor assumed after such date is “qualified acquisitionindebtedness.” 156 Although the statute does not define a “tradeor business,” that term is defined elsewhere in the Code, andthere is no reason the definition should not apply to similarlanguage found in § 108. 157 The term “property used in the tradeor business” means property used in the trade or business that issubject to an allowance for depreciation; because it is held formore than one year; it is not inventory or property held primarilyfor sale to customers in the ordinary course of business. 158 Theexclusion for QRPBI is elective, and the election is made on Form982. 159As previously noted, indebtedness incurred or assumed afterJanuary 1, 1993 must constitute “qualified acquisitionindebtedness.” 160 The term “qualified acquisition indebtedness”is defined as indebtedness incurred or assumed to acquire,153. See Eric C. Green & Ray Sparkman, Consequences of Discharge ofNonrecourse Indebtedness, 67 J. TAX’N. 18 (1987). But see Estate of Newman v.Comm’r., 934 F.2d 426, 430 (2d Cir. 1991) (rejecting an increase in basis inpartnership interest under I.R.C. § 705(a)(1)(B) (2006) involving debt dischargeat partnership level involving insolvency exception).154. I.R.C. § 108(a)(1)(d) (2006).155. Id.156. I.R.C. § 108(c)(3).157. See generally Treas. Reg. § 1.162-1 (1960).158. I.R.C. § 1231(b)(1).159. I.R.C. § 108(c)(3)(C).160. I.R.C. § 108(c)(3)(B).258