Volume 5 Winter 2011 Number 2 - Charleston Law Review

CHARLESTON LAW REVIEW [Volume 5B. Transfer of Property Subject to NonrecourseIndebtedness ................................................................. 248C. Transfer of Property Subject to RecourseIndebtedness ................................................................. 249D. Timing of Cancellation of Debt .................................... 250E. Allocation of Cancellation of Indebtedness Incometo Partners .................................................................... 250F. Partner’s Acquisition of Partnership Debt fromLender ........................................................................... 253V. EXCLUSIONS OF CANCELLATION OFINDEBTEDNESS INCOME UNDER § 108 ...................... 256A. Purchase Price Adjustment Rule of § 108(e)(5) .......... 257B. Qualified Real Property Business Indebtedness(QRPBI)......................................................................... 258C. Attribute Reduction and § 1017(b)(3) .......................... 260D. Conversion of Distressed Partnership to a CCorporation ................................................................... 261VI. FINANCIALLY DISTRESSED S CORPORATIONS ....... 264A. Indebtedness Contributed to Capital .......................... 265B. Identity of a Lender ...................................................... 266C. Reacquisition of Debt Instruments ............................. 266D. Ordinary Income/Capital Gains Issues ....................... 267VII. CONCLUSION ..................................................................... 268I. INTRODUCTIONGiven the severe economic conditions over the last few years,taxpayers and their advisors are faced with a whole host ofeconomic and tax choices relating to the restructuring of troubledpartnerships, two or more member LLCs that operate inpartnership form for federal income tax purposes, andSubchapter S corporations. This Article will focus on the taxaspects of restructuring financially troubled partnerships andtwo or more member LLCs that carry on business as apartnership for tax purposes—with a few comments onSubchapter S corporations, primarily to note the difference in taxconsequences between a Subchapter S corporation and apartnership.230