Volume 5 Winter 2011 Number 2 - Charleston Law Review

CHARLESTON LAW REVIEW [Volume 5use his original basis for the debt, and not reduce such amountby any adjustments under § 1367(b)(2). The shareholder shouldincrease his basis in the stock by his basis in the contributeddebt. 205In the case of a partnership, if the partnership transfers acapital or profits interest to a creditor in satisfaction of itsrecourse or nonrecourse indebtedness, the partnership will betreated as having satisfied the debt with an amount of moneyequal to the fair market value of the partnership interest. 206 Thisrule also applies to corporations, but in the context of new capitalbeing exchanged for debt. 207B. Identity of a LenderGiven the wide use of securitization vehicles, a creditor of adistressed asset might be a real estate mortgage investmentvehicle (REMIC), a real estate investment trust (a REIT), or aregulated investment company (RIC). In the case of a REMIC,the service provider may be constrained in terms of the flexibilitythat it has to modify debt instruments. REITs and RICs may faceproblems in terms of altering debt investments due to thepresence of foreign investors, tax-exempt entities and certaintests concerning the characterization of the income that is beinggenerated.C. Reacquisition of Debt InstrumentsSection 108(i), added by the American Recovery andReinvestment Act of 2009, permits partnerships and otherdebtors to defer cancellation of indebtedness income from certaintypes of discharges occurring in 2009 and 2011. 208 Assuming thatthere is an election attributable to an applicable debt instrument,the debt discharge income will be includible in gross incomeratably over a five-year period. 209 As a general rule, § 108(i)(2)266205. I.R.C. § 108(d)(7)(C).206. I.R.C. § 108(e)(8).207. Id.208. I.R.C. § 108(i)(1).209. Id.