The current "Great Recession," which began in late 2007 with a maelstrom in the debt capital markets, has necessitated a rethinking of the federal income tax rules governing debt restructurings. The harsh rules2 promulgated by the Internal Revenue Service (IRS) in reaction to the 1991 taxpayer-favorable decision in Cottage Savings v. Commissioner,3 have been inhibiting restructurings. Instead, rules that did not trigger adverse tax results have been needed to induce lenders and borrowers to restructure obligations that can no longer be paid according to their terms.

In the first opinion authored by Justice Elena Kagan, the Supreme Court ruled that a Chapter 13 debtor may not deduct the “ownership costs” of a vehicle under the means test when he owes no further payments on the vehicle, affirming a decision of the Ninth Circuit Court of Appeals. The 8-1 opinion featured a pro-debtor dissent by Justice Scalia.

The Internal Revenue Service (IRS) recently issued rulings regarding the availability of tax losses after a bankruptcy,1 the ability to take a loss under Sections 165(a) and 165(g),2 and the characterization of a loss after an ownership change.3 There are few rulings or other sources of authority for these types of issues, and thus, a review of these rulings provides insight into the IRS’s current thinking on the issues addressed.

PLR 201051020

Several Installments in this blog series about the long-running, global Ponzi scheme of Bernard L.

Now we can add Program Manager’s Technical Advice or “PMTA” to the list of administrative projects on tax matters that are open to FOIA and review by the tax practitioner community. One area that needs some help are investors in tenancy-in-common programs. On May 15, 2010, the Service issue PMTA 2010-05 which provides an legal analysis from Chief Counsel’s office directed to IRS program managers in the field.

The U.S. Supreme Court’s October 2010 Term (which extends from October 2010 to October 2011, although the Court hears argument only until June or July) officially got underway on October 4, three days after Elena Kagan was formally sworn in as the Court’s 112th Justice and one of three female Justices sitting on the Court.

On 7 January 2011, the IRS published fi nal regulations intended to clarify when and how a debt instrument should be retested for debt vs. equity status, and when its terms have been signifi cantly modifi ed. The fi nal regulations generally apply to alterations of the terms of a debt instrument on or after 7 January 2011. Upon a signifi cant modifi cation there is a deemed retirement of the existing debt instrument and a deemed issuance of a new instrument (which may or may not be debt).

On April 29, 2011, the Internal Revenue Service (“IRS”) issued Private Letter Ruling (“PLR”) 201117036 denying recognition of tax-exempt status under Section 501(c)(3) of the Internal Revenue Code (“Code”) to a nonprofit credit counseling agency (“CCA”) because its primary activity would have been the provision of pre-bankruptcy certification and post-bankruptcy counseling for fees.

The Seventh Circuit recently decided that a mortgage that assigns future rental income to the mortgagee creates a security interest that takes priority over a federal tax lien.  Bloomfield State Bank v. United States, No.

This is the fifty-second in a series of installments on this blog that are discussing issues arising in the aftermath of the global Ponzi scheme perpetrated by Bernard L. Madoff (“Madoff”).