Volume 5 Winter 2011 Number 2 - Charleston Law Review

TAX ASPECTS OF RESTRUCTURINGFINANCIALLY TROUBLED PARTNERSHIPSAND LLCS (WITH A FEW THOUGHTS ONSUBCHAPTER S CORPORATIONS)David B. Newman I. INTRODUCTION ............................................................... 230II. DEBT MODIFICATIONS ................................................... 231A. Changes in Obligor or Security ................................... 232B. Changes in Yield of Debt Instrument ......................... 233C. Changes in Time of Payments ..................................... 234D. Alteration in the Nature or Characterizationsof the Instrument ......................................................... 235E. Changes in Accounting or Financial Covenants ......... 238III. TAX CONSEQUENCES OF MODIFICATIONS .............. 238A. Tax Consequences to Significant Modifications ofDebt Instruments ......................................................... 239B. Publicly Traded Debt vs. Non-Publicly Traded Debt . 241C. Contingent Payments on New Debt ............................ 243IV. TRANSFER OF PARTNERSHIP INTEREST INSATISFACTION OF A PARTNERSHIP DEBT ................ 245A. Participation Interest by Creditor Without Changeto Partner Status ........................................................ 247 David B. Newman is a tax attorney in private practice. He is a graduate ofNew York University, BS, in accounting and finance, 1962; Cornell Law School,JD, 1965; New York University School of Law, LLM Taxation, 1970; HarvardBusiness School, Advanced Management Program, 1986. He was a ManagingDirector at Bankers Trust Company (now Deutsche Bank) and Bank of Americain Capital Markets and Investment Banking for more than 33 years. He alsoworked for the Office of Associate Chief Counsel (International) IRS inWashington, D.C. Mr. Newman has written “Taxation of Financially DistressedBusinesses” and was a co-editor of “Taxation of Financial Instruments.” He hasalso authored a number of tax articles and has been a guest lecturer at HarvardLaw School, Cornell Law School, and various tax/business forums.229