United States

Cancellation of debt income for debtor subsidiary corporations


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The global financial crisis and its aftermath have caused multinational entities to adapt to and struggle with certain new economic externalities. Multinational entities have had to deal with supply and demand constraints, budget cuts, resource and capital constraints, reduced purchasing activity at the product level, reduced or nonexistent merger-and-acquisition activity, and insufficient cash/income flow to repay intercompany debt principal or the corresponding interest payments. Consequently, the issues surrounding cancellation of indebtedness have become particularly relevant with respect to multinational entities.

In this article previously published in The Tax Adviser, authors Ramon Camacho and Adnan Islam address the U.S. corporate income tax effects of cancellation of debt (COD) income; the contribution-to-capital exception to COD income; partial cancellation of COD income; the impact of insolvency; and, finally, some COD income issues to consider in the international corporate context.