SECTION 2. BACKGROUND

Section 61(a)(12) of the Internal Revenue Code provides that gross income includes income from the discharge of indebtedness.

Section 108(e)(4) provides that for purposes of determining the income of the debtor from discharge of indebtedness, to the extent provided in regulations prescribed by the Secretary, the acquisition of outstanding indebtedness by a person bearing a relationship to the debtor specified in § 267(b) or § 707(b)(1) from a person who does not bear such a relationship to the debtor shall be treated as the acquisition of such indebtedness by the debtor.

Section 1.108–2(a) provides that the acquisition of outstanding indebtedness by a person related to the debtor from a person who is not related to the debtor results in the realization by the debtor of income from discharge of indebtedness. The rules of that paragraph apply if indebtedness is acquired directly by a person related to the debtor in a direct acquisition or if a holder of indebtedness becomes related to the debtor in an indirect acquisition.

Section 1.108–2(b) provides in part that an acquisition of outstanding indebtedness is a direct acquisition if a person related to the debtor acquires the indebtedness from a person who is not related to the debtor. That paragraph further provides that notwithstanding the foregoing, the Commissioner may provide by Revenue Procedure or other published guidance that certain acquisitions of indebtedness described in the preceding sentence are not direct acquisitions for purposes of this section.